Gold is on track for its biggest weekly loss in six weeks, with a decline of 3.2% so far this week. This downturn marks its largest drop since June 1. The precious metal's slump is primarily attributed to rising geopolitical tensions in the Middle East, specifically escalating US-Iran clashes, which have caused oil prices to surge. This surge in oil prices is reigniting inflation worries and strengthening the case for higher US interest rates, which typically weighs on non-yielding assets like gold. Traders are now pricing in a 73% chance of an interest rate hike in December, according to the CME FedWatch Tool.
Despite softer US inflation figures released earlier in the week, the jump in oil prices overshadowed any optimistic sentiment. Spot gold was up 0.5% at $3,988.20 per ounce by 0313 GMT, having briefly touched its lowest level since July 1. US gold futures for August delivery remained steady at $3,992. The price of Brent crude has jumped about 12% this week, driven by concerns over limited oil flows out of the Strait of Hormuz, a critical shipping route, following requests from Tehran for the Houthi movement to be ready to shut down the Red Sea export route.
Several Federal Reserve officials have indicated a willingness to consider further rate hikes. Dallas Federal Reserve President Lorie Logan publicly called for a rate hike, and Fed Vice-Chair Philip Jefferson suggested he would be open to raising rates if inflation does not improve in the near term. Analysts like Tim Waterer of KCM Trade noted that even with tamer consumer and producer price index figures, the oil price spike prevented traders from celebrating cooler inflation numbers, emphasizing that geopolitical risks and inflation and yield concerns are dominating forces holding gold back.
