Gold Slides Over 1% as Oil-Driven Inflation Fears Firm Up Rate-Hike Bets
Gold fell more than 1% as rising oil prices stoked inflation concerns and reinforced expectations of further Federal Reserve rate hikes.
Gold prices dropped more than 1% on Monday, pressured by a rebound in oil prices that revived inflation worries and strengthened expectations of additional interest rate increases from the US Federal Reserve.
Spot gold declined 1.5% to $4,223.95 per ounce, while US gold futures also shed 1.5% to trade at $4,257.90.
A market analyst said the combination of high bond yields and elevated oil prices continued to weigh on the yellow metal. Crude prices climbed after mixed signals on oil flows, keeping inflation at the centre of investor attention.
The oil move followed US President Donald Trump's rejection of an Iranian proposal to reopen the Strait of Hormuz and end fighting. Iran maintained that only diplomacy can resolve its conflict with the United States and Israel. Oil prices rebounded more than 1% on the development.
The Fed raised rates earlier this month, lifting its target range by a quarter percentage point to between 3.75% and 4%. Traders are now pricing in a 66% chance of another US rate hike in October, according to CME's FedWatch Tool.
Higher energy prices can feed inflation by pushing up costs across the economy. While gold is widely seen as a hedge against inflation, a high interest rate environment raises the opportunity cost of holding the non-yielding metal.
Investors are awaiting a series of US labour market and inflation readings this week, including job openings, the ADP employment report, the Personal Consumption Expenditures price index and nonfarm payrolls. An analyst noted that stronger-than-expected inflation or employment data could keep upward pressure on bond yields and weigh further on gold.
Separately, Cleveland Fed President Beth Hammack said she is concerned that persistently high inflation risks conditioning the American public to accept elevated prices as the norm, adding that the central bank cannot allow that to happen.
Among other precious metals, spot silver fell 2.6% to $62.64 per ounce, platinum was down 2.1% at $1,741.45 and palladium lost 2.1% to $1,239.95.