Gold prices fell, with spot gold dropping 1.6% to $4,290.54 an ounce in New York, and silver declining 3.5% to $64.7231 an ounce. This decline was primarily driven by the monitoring of US-Iran talks and comments from Federal Reserve officials regarding energy costs and future interest rate paths. Higher rates and a stronger US dollar, which rose to its highest since July, negatively impact gold as it pays no interest and is priced in the US currency. Several Fed policymakers expressed concerns about inflation after the central bank's first rate hike in three years last week.
The renewed focus on diplomatic efforts to end the US-Iran conflict, with President Donald Trump flagging progress, initially saw Brent crude snap five days of declines. However, rising oil prices, fueled by the geopolitical tensions and a lack of decisive progress, reignited inflation fears. This, in turn, bolstered expectations for the Federal Reserve to continue its hawkish stance. Fed Governor Michael Barr explicitly stated that further interest rate increases are likely necessary to bring inflation back to the central bank's 2% target.
US business activity showed strong growth, rising at the fastest pace in over five years, with robust demand pushing up new orders and employment. This strong economic data further supported the case for potential Fed rate hikes. Traders are now pricing in a nearly 70% chance of another rate hike in October, according to the CME FedWatch Tool. The yield on the benchmark 10-year US Treasury bond reached its highest level since July 2007, and the US Dollar Index climbed 0.5%, further diminishing the appeal of non-yielding gold.
