Gold experienced a decline, holding near $4,100 an ounce after a 1.4% drop in the previous session, and further slipped to around $4,080 an ounce following a second day of US strikes against Iran. These military actions, in retaliation for Iranian attacks on shipping in the Strait of Hormuz and occurring shortly after the US revoked a waiver allowing Tehran to sell oil globally, led to an increase in crude oil prices and intensified inflation concerns.
Analysts noted that the geopolitical escalation in the US-Iran conflict, particularly the closure of the Strait of Hormuz, has driven crude oil prices higher, which in turn revives inflation worries and strengthens safe-haven assets like the US dollar and Treasury yields. This environment limits the upside for precious metals. Jateen Trivedi, VP Research Analyst at LKP Securities, highlighted that a stronger US dollar, firm crude oil prices, and expectations of higher interest rates continued to weigh on investor sentiment, causing gold to decline by more than 2% in a recent week.
The prospect of higher inflation, fueled by rising oil prices, has increased the likelihood of further interest rate hikes by the Federal Reserve. The CME FedWatch tool indicated a 51.2% probability of a September rate hike, marking the first time this cycle that the odds crossed 50%. This shift has led investors to prefer Treasuries and the dollar over gold as a safer investment. The June FOMC minutes further supported this hawkish sentiment, revealing that several officials desired another rate increase before the committee decided to hold rates, indicating that inflation hawks are closely monitoring oil prices and advocating for a September hike.
Spot gold settled at $4,120.67, down $3.12 or -0.08%, extending its weekly decline. Domestically, MCX gold futures for August delivery fell Rs 3,900, or 2.65%, to close at Rs 1.43 lakh per 10 grams, while silver for the September contract plunged Rs 14,746, or 6.2%, to Rs 2.22 lakh per kilogram. Market participants are closely watching upcoming inflation data from India, the EU, and the United States, along with key US economic indicators like retail sales, housing data, and jobless claims, for further clues on global central bank monetary policy.
