Gold prices declined below $4,100 an ounce, experiencing continued pressure as renewed missile strikes between the US and Iran led to a surge in oil prices. This escalation fueled expectations that the Federal Reserve would implement further interest rate hikes to control inflation. The US conducted its fourth strike in a week against Iran in response to an Iranian attack on a Cyprus-flagged container ship. Gold specifically fell 0.10% to $4,118.71 per ounce, while Brent crude oil rose nearly 8% to $79 per barrel, driven by fears of extended hostilities and disruptions in the Strait of Hormuz, a crucial route for global oil and LNG supplies.
Investors are closely monitoring key US inflation data expected this week for insights into the Federal Reserve's policy direction. Markets currently anticipate that the Fed will deliver at least one more interest rate hike before the year's end. This hawkish sentiment is underscored by Federal Reserve Chair Kevin Warsh's scheduled appearance before the US Congress. The increased likelihood of rate hikes places additional pressure on gold, which does not offer a yield, making interest-bearing assets like Treasuries more attractive by comparison.
The Federal Open Market Committee (FOMC) June meeting minutes indicated a divided committee still focused on persistent inflation, keeping the odds of a September rate hike around 50%. The CME FedWatch tool showed a 51.2% probability of a September hike, which later climbed to 69%. Rising crude oil prices provide the data needed by inflation hawks to push for rate increases. This situation means gold is trading more on the conflict's inflation impact than its geopolitical safe-haven appeal, especially as higher yields make gold less appealing due to increased opportunity costs. According to Bart Melek, global head of commodity strategy at TD Securities, every indication points toward the market worrying about inflation.
