Gold Falls as Oil and Bonds Rise on Diminishing US-Iran De-escalation Hopes
Gold prices fell today after two consecutive sessions of gains, as oil prices surged following expectations that the Middle East crisis would persist, exacerbating inflation and pushing US Treasury yields higher. Spot gold dropped 0.5 percent to $4,391.77 per ounce, while US December gold futures declined 0.6 percent to $4,447.30.
Independent analyst Ross Norman said, “Gold is undergoing a correction driven by a combination of traditional headwinds and some profit-taking after strong gains.” He added that the ongoing Middle East crisis would fuel inflation risks, thereby strengthening the dollar and Treasury yields.
Oil prices continued to rise, reaching their highest levels in over two weeks, while the pace of selling in US Treasuries accelerated, pushing 30-year Treasury yields to their highest level in nearly two decades. Iran announced it had shifted to a fully “offensive” military posture due to the failure of efforts to reach a permanent agreement ending the war with the United States, as Washington ruled out extending a temporary ceasefire deal.
High energy prices typically raise inflation concerns and bolster expectations for higher interest rates. While gold is usually seen as a hedge against economic uncertainty, rising interest rates tend to reduce the metal’s appeal. Gold prices reached their highest level since June 5 last week, after market expectations for a Federal Reserve rate hike in September flipped to a roughly 66 percent probability of holding rates steady. This shift followed unexpected job losses in the US in July, consumer price inflation below forecasts, and weak retail sales.
Norman continued, “Although it is too early to say that we are seeing a resumption of positive market sentiment, there are certainly encouraging signs for those betting on higher prices.” He added that he expects the structural uptrend that began in 2022 to resume once oil supplies improve.
Markets will focus on the latest Federal Reserve meeting minutes, scheduled for release on Wednesday, for clues about the interest rate path. In other precious metals, spot silver fell 1.3 percent to $64.94 per ounce, platinum dropped 1.5 percent to $1,742.70, and palladium declined 1.5 percent to $1,313.96.
