Gold prices extended their decline for a third day, with bullion trading near $4,350 an ounce, after dropping 2.6% over the last three sessions. This downturn was attributed to fresh attacks on ships in the Middle East, specifically the destruction of five Iranian tankers by US forces near Kharg Island in response to attempted missile attacks on an American warship. These events have heightened inflationary risks and increased the likelihood of a US interest-rate hike.
The broader financial market context further pressured gold, which is often seen as a safe-haven asset. Rising crude oil prices, with Brent nearing $100 and WTI trading around $91.80 per barrel, and elevated Treasury yields, particularly the 10-year Treasury yield reaching about 4.80%, contributed to the sentiment against gold. The US dollar also saw a modest rebound, further weighing on the precious metal.
Investors are closely monitoring upcoming US inflation data, including the Producer Price Index (PPI) due on Thursday and the Consumer Price Index (CPI) on Friday. These reports are considered crucial inputs before the Federal Reserve's September 15-16 meeting. Market probabilities for a 25-basis-point rate hike at this meeting are around 60%, with strong inflation figures expected to validate the rate hike, while softer data might revive calls for a pause. The conflict in the Strait of Hormuz remains a key geopolitical factor influencing oil prices and inflation expectations.
While geopolitical demand exists for gold, it is not strong enough to overcome the combined impact of inflation concerns, rising oil prices, and increasing Treasury yields. Gold's near-term outlook remains challenging, as it typically performs better in environments with lower borrowing costs. The metal failed to sustain levels below the $4,422 to $4,465 resistance zone and extended its slide towards the $4,365 support level.
