Gold is currently trading around $4,290 an ounce, having fallen over 1% in the previous session to a five-week low. This decline is largely attributed to increasing disruptions in Middle Eastern oil flows, which are expected to drive up energy prices and inflation. Traders are pricing in a 92% chance of the Federal Reserve implementing its first rate increase in three years during its upcoming meeting this week. Higher borrowing costs typically negatively impact gold, as it does not offer interest.
Earlier in the week, gold edged lower, trading near $4,340 an ounce, following hotter-than-expected US inflation data that bolstered expectations of a rate hike. Underlying inflation, as measured by the core consumer price index (excluding food and energy), rose 0.3% month-over-month in August. Although gold ended that particular session higher, it was still down 1.8% for the week, marking its third consecutive weekly decline.
Market analysts anticipate the Federal Reserve will raise US interest rates by 0.25% this week, a move that could push global gold prices down by as much as $100 an ounce. Some pundits suggest gold could fall to approximately $4,200 before potentially beginning to recover. Locally in Thailand, gold prices are projected to decrease by 1,000 baht per baht-weight, trading around 66,500 baht from 67,500 baht on Tuesday. STM, one of Thailand's largest gold traders, now forecasts bullion to trade around $4,700 by year-end, a reduction from its previous forecast of $5,000.
Investors are closely watching for signals on how much further rates might rise, as the market prices in a 90% probability of a Fed rate increase. Crude oil prices have also seen a rapid increase, rising about 20% over the past two weeks to $107 per barrel, further contributing to inflation concerns and pressure on the Fed to act. Gold has already dropped from about $4,500 an ounce to less than $4,300 as the market broadly expects a rate uptick.
