Gold was steady after a two-day drop as high oil prices continued to fuel inflation concerns and keep interest-rate hike bets a near-certainty ahead of the Federal Reserve’s policy decision later Wednesday. Bullion was trading around $4,290 an ounce. Elevated energy prices pushed bond yields higher, and traders are now pricing in a 92% chance of the Fed hiking rates.

Higher borrowing costs are typically negative for gold, which doesn’t pay interest. The 10-year US Treasury yield rose to the highest level in almost two decades, the latest milestone in a bruising global bond selloff driven by booming capital investment and soaring energy prices that are exacerbating inflation. The yield, which serves as a benchmark for borrowing costs across the globe, rose as much as five basis points to 5.04% on Tuesday, the highest since 2007.

That’s adding to investor expectations that the central bank will raise interest rates for the first time since 2023. If it doesn’t, or if Fed Chairman Kevin Warsh is noncommittal about additional increases, traders may demand even higher yields on long-term bonds to safeguard their investments against the risk of inflation remaining elevated. "With markets already pricing a high chance of a Fed hike this week, the main uncertainty is less about the hike itself, and more about what comes after," said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. "If the Fed keeps the door open to further tightening, gold may be more vulnerable," and move lower toward $4,000 an ounce if key support at $4,250 is broken, he added. Oil steadied after a two-day gain, as the duration of Saudi Arabia’s East-West pipeline shutdown after attacks last week remains unclear.

The route had allowed millions of barrels a day to avoid passing through the Strait of Hormuz, and Saudi Aramco is now delaying deliveries to some European customers. Gold is down more than 3% in September, after trading above $4,700 an ounce in late August, as traders repeatedly recalibrate the outlook for Fed policy. Still, many investors are betting that bullion will regain momentum once it rediscovers its traditional value as a portfolio hedge.

Spot gold was 0.2% lower at $4,284.99 an ounce at 8:45 a.m. in Singapore. Silver was little changed at $63.68 an ounce. Platinum dipped 0.2% and palladium was up 0.1%.

The Bloomberg Dollar Spot Index, a gauge of the US currency, was 0.1% higher after gaining 0.6% in the past two sessions.