Gold falls 2% as Middle East tensions fuel inflation fears, rate-hike bets
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US gold futures for August delivery slid 2.5 per cent to US$4,050.
PHOTO: REUTERS
- Gold prices fell over 2% on July 23 as Middle East tensions increased energy prices and inflation fears, pushing expectations of US interest-rate hikes higher.
- The rise in crude oil to US$100 a barrel and higher US Treasury yields made gold less attractive due to its lack of yield.
- Investors await the US Federal Reserve's upcoming policy meeting, with an 83% chance of a September rate hike priced in by the market.
AI generated
BENGALURU – Gold fell more than 2 per cent on July 23, retreating from the previous session’s two-week high, as the Middle East conflict drove up energy prices, fuelling inflation concerns and reinforcing expectations of US interest-rate hikes.
Spot gold was down 2 per cent at US$4,047.26 per ounce by 3.51pm GMT – having hit its highest level since July 7 – on July 22.
US gold futures for August delivery slid 2.5 per cent to US$4,050.
The US dollar gained 0.3 per cent, making greenback-priced bullion expensive for buyers overseas, while yields on the 10-year US Treasury note rose to a more than one-year high.
“The higher crude oil prices are pushing up bond yields on the notions that central banks will not be able to lower their interest rates because of problematic inflation, and rising bond yields are the enemy of gold and silver market bulls because gold and silver carry no yield,” said Jim Wyckoff, a market analyst at American Gold Exchange.
Brent crude oil prices hit US$100 a barrel for the first time since late May after Yemen’s Houthis said they had struck two Saudi oil tankers, raising fears that disruption to global oil supplies could spread beyond the Strait of Hormuz.
Elevated oil prices have been weighing on gold prices as they raised expectations of higher for longer interest rates, which tend to diminish the appeal of non-yielding gold.
Investors now await the US Federal Reserve’s interest rate decision and chairman Kevin Warsh’s comments following the central bank’s two-day policy meeting next week.
Traders are pricing in about an 83 per cent chance of a Fed rate hike in September, up from 68 per cent on July 22, according to the CME FedWatch Tool.
“The marketplace expects no change in interest rates (next week), maybe a hawkish lean on the rhetoric. But if the Fed would happen to lean surprisingly dovish or surprisingly hawkish, the markets would react,” Wyckoff said.
Among other metals, spot silver slid 3.6 per cent to US$57.53 per ounce, platinum fell 3.1 per cent to US$1,593.22 and palladium dipped 2.3 per cent to US$1,261.00. REUTERS
