Gold prices dropped on Monday, falling by 1.03% to $4,045.95 per ounce for spot gold and to a seven-month low for U.S. Gold Futures for August Delivery. This decline was primarily attributed to escalating tensions between the U.S. and Iran, with Iran launching drones and missiles at U.S. military bases shortly after a threat from President Donald Trump. Although gold is typically seen as a safe-haven asset, the conflict pushed oil prices higher, leading to concerns about increased inflation and the likelihood of interest rate hikes by the Federal Reserve.
Analysts, such as Peter Grant, noted that the market is adjusting to the Federal Reserve's hawkish stance. While the Fed kept rates steady this month, policymakers anticipate a rate hike in the second half of the year to combat inflation, which remains above the 2% target. The U.S. dollar also saw its largest monthly gain in nearly a year, making gold more expensive for international buyers and further contributing to its price decline. Traders are now keenly awaiting upcoming employment data, including ADP employment figures and U.S. nonfarm payrolls, for further clues on the Fed's monetary policy direction.
Przemyslaw K. Radomski of Golden Meadow emphasized that the conflict impacted gold through the "rate channel" rather than the traditional "safe-haven channel." He argued that renewed inflation risks from disrupted oil supplies reinforced the case for higher interest rates and a stronger dollar, thereby pushing gold prices down. Despite crude oil ticking up to around $70, the market was well-supplied, and the escalation did not create a significant inflation scare, yet gold failed to attract buying interest. The market is pricing in a nearly 60% chance of a rate hike by September and 80% by December, with the Federal Reserve Chair prioritizing inflation control.
