As fresh battles in the Middle East increased inflationary worries and increased predictions that the U.S. Federal Reserve will maintain higher interest rates for an extended period of time, gold prices dropped for a second consecutive session on Monday.
By 0847 GMT, spot gold had down 1.2% to $4,072.49 per ounce, while U.S. gold futures for August delivery had dropped 0.8% to $4,081.30. Heavy missile and drone attacks were exchanged between Iranian and American forces, with Tehran threatening to close the Strait of Hormuz and striking American installations in states throughout the Gulf.
The revelation caused oil prices to increase by almost 3%. “Renewed hostilities in the Gulf rekindle concerns about rising and the risk of further Federal Reserve tightening, creating extra headwinds (for gold) from higher bond yields and a stronger dollar,” Ole Hansen, Saxo Bank analyst, said. “Focus on the Middle East and higher oil prices in addition to low liquidity during the summer holiday period are key risks that may drive gold prices outside their present consolidation range of $3900-$4200,” Hansen stated.
The opportunity cost of owning non-yielding bullion rises with higher interest rates. According to the CME FedWatch Tool, traders are pricing in a roughly 71% possibility of a U.S. Fed interest rate hike in September, up from about 63% last week. The June Consumer Price Index and Producer Price Index, retail sales statistics, and weekly unemployment claims are among the several U.S. economic data releases this week.
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