Fed Hike Odds Fell to 37%. The 10-Year Yield Hit Its Highest Since 2002 Anyway.

Earlier this week, markets gave the Fed a 70% chance of hiking in October. This morning it’s 37%, per Kitco. That should be the bond market exhaling. Instead, the 10-year Treasury yield touched 5.34% today, the highest since 2002, per ZeroHedge.

Read that again. The Fed is less likely to hike, and long-term borrowing costs went up anyway.

The Fed Isn’t the Only Game in Town

Yesterday I wrote that softer PCE data cut the odds of another hike. True, and it helped gold bounce. But the short-term rate is the Fed’s to set. The 10-year is set by everyone else.

And everyone else is demanding more. The 30-year touched the 5.68% area, per Kitco. ZeroHedge puts it at a post-2002 high, with the 10-year pulling back to the 5.27% to 5.29% range by the end of the session. The dollar index also hit a 52-week high before giving some back.

Gold sits in the middle of that. Spot was around $4,181.80, up 0.62%, per Kitco, with silver at $61.09, up 1.33%. A rebound, but a polite one.

Why Gold Can’t Run

Gold pays nothing. When a 10-year Treasury pays more than 5%, every ounce you hold carries a visible cost. A stronger dollar adds to it for buyers abroad, as Yahoo Finance noted today.

Two things are working against each other. Cooler Fed expectations help gold. Rising long-dated yields and a firm dollar hurt it. Net result: a metal that moves a little and goes nowhere. Yahoo reports gold is roughly 4.7% lower over the past month.

There’s one more wrinkle. Brent crude is back above $100, per Kitco. Oil at that level keeps inflation fears alive, and inflation fears are what keep long yields high.

What This Means for Stackers

Don’t read a 37% hike probability as an all-clear. It’s a probability that was 70% a few days ago, and it will move again.

The next data point is the September jobs report on Friday morning. A hot number revives the hike case. A soft one weakens it. Neither answers the bigger question, which is whether bond buyers want to be paid more for lending to Washington. Right now they do.

If you buy on a schedule, the schedule is the point. Gold at $4,180 is a price, not a verdict. I wouldn’t try to guess which way the bond market breaks first. I’d watch it, and keep stacking at the pace I can afford.