Gold experienced a three-day decline, with prices little changed near $4,350 an ounce, after dropping 2.6% over the preceding three sessions. This downturn was attributed to escalating tensions in the Middle East, specifically fresh attacks on ships, which heightened inflationary risks and strengthened the likelihood of a US interest-rate hike. US forces destroyed five Iranian tankers carrying crude near Kharg Island in response to attempted missile attacks on an American warship, exacerbating fears of an extended conflict and unsettling energy markets.
Despite the initial decline, gold prices later climbed on Tuesday, up 0.6% at $4,429.89 per ounce, as the U.S. dollar slipped by 0.4%. U.S. gold futures for December delivery were largely unchanged at $4,475.10. This weakening dollar made greenback-priced metals more affordable for holders of other currencies. However, this gain was seen as tenuous, with Chris Weston, head of research at Pepperstone Group, noting that gold remained "locked in a battle between buyers and sellers."
Gold's rebound was short-lived, as the precious metal reversed its early gains to trade around $4,400 after reaching an intraday high near $4,443. This reversal was driven by a modest rebound in the US Dollar and rising oil prices. Tensions in the Middle East intensified with Iran-backed Houthi attacks on Saudi energy facilities, and oil prices, particularly West Texas Intermediate (WTI), advanced to around $91.80 per barrel, reaching a high of $92.48. These renewed hostilities also helped the US Dollar recover from its recent weakness, with the US Dollar Index trading around 98.97 after recovering from 98.72.
The prospect of higher US interest rates, influenced by strong US jobs data and persistent inflation concerns, also weighed on gold. While gold is traditionally seen as a hedge against inflation and geopolitical tensions, its appeal diminishes when interest rates rise, as it offers no yield. The Federal Reserve has expressed concerns about inflation remaining above its 2% target, and upcoming US inflation data, including the Producer Price Index on Thursday and the Consumer Price Index on Friday, are expected to heavily influence the Fed's decision regarding a potential 25-basis-point rate hike at its September 15-16 meeting.
