Gold fell nearly half a percent Monday to $3,928.06 an ounce, and the yield on the 10-year Treasury note climbed to 4.97%, as traders continued to digest a Federal Reserve that looks more inclined to raise interest rates than to cut them.
The moves cap a volatile few weeks for rate-sensitive assets. Monday's market wrap showed the 10-year yield extending a climb that began after the Fed's October 28 meeting, where policymakers voted 10-2 to hold the federal funds rate at 3.75% to 4%, with two governors pushing instead for a quarter-point increase.
A Reversal From the Cutting Cycle
The split vote, under new Fed Chair Kevin Warsh, marked a sharp change in tone from the rate-cutting path investors had priced in for most of the year. Warsh told reporters after the meeting that inflation remained elevated and that the Fed would wait for more data before its next move. Futures markets have since swung to pricing in a roughly 85% chance of a quarter-point rate increase — not a cut — at the Fed's next meeting on December 9, according to a tracker of CME FedWatch pricing cited in coverage of Warsh's press conference.
That shift has rippled through commodities and currency markets. Gold, which tends to struggle when interest rates and bond yields rise because it pays no yield of its own, has pulled back from levels near its highs for the year. The dollar, meanwhile, has firmed against a basket of major currencies as traders price in less, not more, Fed easing.
The pressure point for markets now is the long end of the Treasury curve. A 10-year yield approaching 5% raises borrowing costs across the economy, from mortgages to corporate debt, at a moment when stock valuations — especially among the AI-related technology names that have driven much of this year's market gains — are already stretched by historical measures.
Traders will get more clarity at the Fed's December meeting, but in the meantime, strategists say bond and gold markets are likely to stay volatile as each new economic data point is read for clues about whether Warsh's Fed delivers the hike markets are now bracing for, or reverts to holding steady into the new year.
