Gold Falls a Second Day as Energy Surge Lifts Two-Year Treasury Yield to 4.96%

NEW YORK — Gold fell for a second consecutive day as a surge in energy prices fueled concerns about persistent inflation. Front-month crude oil futures rose 2.1 percent, pushing the two-year Treasury yield to 4.96 percent from 4.89 percent the prior session — a move that reflects markets pricing in a higher-for-longer rate scenario and eroding the appeal of non-yielding assets like gold.

The increase in energy costs is darkening the inflation outlook and reducing the probability of Federal Reserve rate cuts in 2026. Fed funds futures now price the chance of a December cut at 38 percent, down from 51 percent last week. Fed Chair Kevin Warsh has repeatedly said monetary policy will remain restrictive until inflation shows a clear path to 2 percent, a target now appearing more distant.

Bond investors faced duration risk as the yield curve shifted higher across the board. The 10-year Treasury yield climbed five basis points to 4.38 percent, while the 30-year yield rose four basis points to 4.51 percent. The parallel shift compressed spreads on investment-grade corporate bonds, raising the cost of new issuance for companies seeking to refinance debt.

Institutional funds holding longer-dated fixed-income assets absorbed mark-to-market losses and rotated into shorter-duration instruments. The dollar index gained 0.3 percent to 105.6 as higher U.S. yields attracted foreign capital, adding pressure on commodity prices for international buyers.

Equity markets reacted to the prospect of tighter financial conditions, with the S&P 500 falling 1.2 percent to 7,408. Technology stocks led the decline, with Tesla dropping 14.5 percent to $319.69 and Alphabet falling 7.1 percent to $317.69, as investors recalibrated valuations against higher discount rates.

Portfolio managers are favoring short-duration assets and inflation-protected securities as a hedge against continued price pressures, reflecting a broader market view that elevated borrowing costs will persist and challenge highly leveraged companies while slowing capital expenditure.