Gold prices are experiencing significant volatility, having fallen over 2% on July 23rd before seeing some dip-buying. Middle East tensions, particularly strikes on Saudi oil tankers by Yemen's Houthis, have pushed crude oil prices towards $100 a barrel, raising concerns about inflation and strengthening expectations of a US interest rate hike by the Federal Reserve.
The increased likelihood of a Fed rate hike is making non-yielding gold less attractive compared to interest-bearing assets like US Treasury yields, which have reached their highest levels since January 2025 (around 4.71% for the 10-year yield). The CME FedWatch Tool indicates an 83% chance of a September rate hike, up from 68% on July 22nd, further pressuring gold prices.
Despite recent dip-buying that saw gold temporarily rise above $4,130 an ounce, analysts like Bart Melek of TD Securities suggest the yellow metal could drop back to around $3,900 an ounce due to the higher rate environment. Gold had retreated from a two-week high of $4,165.87, with August delivery futures falling 2.5% to $4,050. The US dollar’s gain also makes dollar-priced bullion more expensive for international buyers, contributing to gold's decline.
Spot gold was down 2% at $4,047.26 per ounce by 3:51 PM GMT on July 23rd. Silver also saw sharp declines, with spot silver sliding 3.6% to $57.53 per ounce and September contracts dropping as much as 4.9% before paring losses. Platinum and palladium also dipped. Investors are now awaiting the Federal Reserve's upcoming policy meeting and any comments from Chairman Kevin Warsh, though the market largely expects no change in interest rates next week but is sensitive to any hawkish or dovish surprises.
The current geopolitical developments and the resulting inflation fears are compelling traders to weigh the impact of higher energy prices against soft US economic data, creating uncertainty about the Fed's future interest rate path. The recent rally in gold was driven by short covering and dip-buying, rather than an aggressive build-up of new long positions, as the metal has lost about a fifth of its value since February.
