Gold slid over 1% on Monday as fears of a closure of the Strait of Hormuz drove oil prices sharply higher, reviving expectations of elevated interest rates to combat inflationary pressures from escalating hostilities in the Middle East.
Edgar Su | Reuters
Gold prices fell for a second straight session on Monday as renewed hostilities in the Middle East added to inflationary concerns and bolstered expectations that the U.S. Federal Reserve will keep interest rates higher for longer.
Spot gold slid 1.2% to $4,072.49 per ounce, while U.S. gold futures for August delivery were down 0.8% to $4,081.30.
U.S. and Iranian forces exchanged heavy missile and drone assaults, with Tehran targeting U.S .facilities in states across the Gulf and hinting at the closure of the Strait of Hormuz. Oil prices rose nearly 3% on the news.
“Renewed hostilities in the Gulf rekindle concerns about inflation and the risk of further Federal Reserve tightening, creating additional headwinds (for gold) through higher bond yields and a stronger dollar,” Saxo Bank analyst Ole Hansen said.
“Focus on the Middle East and higher oil prices combined with low liquidity during the summer holiday period are key risks that may drive gold prices outside their current consolidation range of $3900-$4200,” Hansen said.
Higher interest rates increase the opportunity cost of holding non-yielding bullion. Traders are pricing in about a 71% chance of a U.S. Fed interest rate hike in September, up from nearly 63% last week, according to the CME FedWatch Tool.
This week is packed with U.S. economic data releases, including the June Consumer Price Index and Producer Price Index, retail sales figures, and weekly jobless claims.
Markets also await Kevin Warsh’s debut appearance before Congress as Fed Chair on Tuesday and Wednesday for further clues on the economy, inflation and monetary policy goals.
COMEX gold speculators trimmed their net long positions by 1,964 contracts to 114,854 in the week to July 7, data released on Friday showed, following three consecutive weeks of increases.