Gold Extends Decline as Higher Energy Costs Raise Rate-Hike Bets

Gold prices experienced a significant decline, falling over 2% on July 23, hitting $4,047.26 per ounce by 11:51 AM EDT. This dip occurred after the yellow metal had reached a two-week high the previous day. US gold futures for August delivery also slid by 2.5% to $4,050. Contributing to this downturn were escalating tensions in the Middle East, particularly reports of Yemen's Houthis striking two Saudi oil tankers, which propelled Brent crude oil prices to $100 a barrel for the first time since late May.

The surge in oil prices has intensified inflation concerns, leading to increased expectations for the Federal Reserve to raise interest rates. According to the CME FedWatch Tool, the probability of a Fed rate hike in September jumped to 83% from 68% on July 22. Traders are also pricing in approximately a one-in-three chance of a rate hike at next week's meeting. This environment, characterized by higher interest rates and elevated US Treasury yields (with the 10-year yield reaching its highest level since January 2025), diminished the appeal of non-yielding assets like gold.

The strength of the US dollar, which gained 0.3%, further exacerbated gold's decline by making the greenback-priced commodity more expensive for international buyers. Analysts like Jim Wyckoff of American Gold Exchange noted that rising bond yields are detrimental to gold and silver, as these precious metals do not offer a yield. TD Securities warned that the higher rate environment could push gold back to a support level of around $3,900 per ounce.

In addition to gold, other precious metals also saw declines. Spot silver slid 3.6% to $57.53 per ounce, platinum fell 3.1% to $1,593.22, and palladium dipped 2.3% to $1,261.00. Precious metals mining equities also tracked these losses, with companies like Newmont, Agnico Eagle, Barrick, Kinross, AngloGold Ashanti, Gold Fields, and Wheaton Precious Metals experiencing declines ranging from 1.1% to 2.9%. Producers with significant silver exposure, such as Coeur Mining, Pan American Silver, and Hecla, were particularly hard hit.