Gold’s rebound is tied closely to the pullback in Treasury yields, leaving it exposed if the bond selloff resumes ahead of the Fed’s October meeting. With markets pricing an 82% chance of a hike by December, any strong US data or hawkish Fed commentary could quickly push yields back up and gold back toward its recent lows. Oil remains the inflation wildcard: crude prices held up by Middle East supply risks keep inflation concerns alive, which supports the case for further Fed tightening and works against gold. Trump’s pledge not to strike Iran before the midterms has trimmed the safe-haven premium, so geopolitics is offering the metal less support than it did earlier in the war.- Gold’s bounce has less to do with fear than with falling yields, and with the Fed still on a hiking path, that support could prove as fleeting as the dollar’s pause.Summary:Spot gold rose toward $4,180 an ounce in Asian trade on Friday, recovering from a two-month low hit on WednesdayThe 10-year Treasury yield slipped for a second straight session after reaching a 24-year high, and the dollar’s rally pausedSt. Louis Fed President Alberto Musalem said he believes further rate hikes will be needed to bring inflation back to 2%Traders price an 18% chance of a Fed hike in October and 82% by December, according to CME FedWatchTrump said the US will not attack Iran before the midterm elections, describing talks as productiveGold climbed during Asian trading on Friday, moving toward $4,180 an ounce and extending its recovery from a two-month low set on Wednesday, as a pause in the dollar’s rally and a second straight decline in US Treasury yields lifted demand for the metal.Easing yields look to be doing most of the work. The benchmark 10-year Treasury yield has slipped for two sessions after touching a 24-year high on Wednesday, reducing the opportunity cost of holding gold, which pays no interest. A softer dollar has added support by making the dollar-priced metal cheaper for buyers using other currencies.The broader backdrop remains challenging. The Federal Reserve raised rates last month for the first time in three years, and St. Louis Fed President Alberto Musalem said on Thursday that he believes further tightening will be needed to bring inflation back to the 2% target, although he declined to say what policymakers should do at their meeting later this month. Traders see an 18% chance of a hike in October and an 82% chance of one by December, according to CME’s FedWatch tool.That tension sets the limits for gold. The metal is often bought as a hedge against inflation, and inflation concerns are being kept alive by higher oil prices linked to supply risks in the Middle East. But higher interest rates reduce gold’s appeal relative to yielding assets, and analysts note that the prospect of further Fed tightening leaves the metal vulnerable, with continued buying by central banks likely to cushion any declines.Geopolitics offered some calm. President Donald Trump said the United States would not attack Iran before November’s midterm elections and described talks with Tehran as productive. That reduces the near-term risk premium in gold, although reports that US military options remain ready mean the threat has not disappeared.Traders will now look to upcoming US economic data for signals ahead of the Fed’s October meeting, with the direction of Treasury yields likely to remain the main driver of gold in the near term. This article was written by Eamonn Sheridan at investinglive.com.