Interest Rate Expectations Dim Gold's Glow

Gold prices fell after the resumption of attacks in the Middle East sparked concerns about rising inflation and bolstered bets on higher U.S. interest rates, following comments from Federal Reserve Chair Kevin Warsh that leaned toward tightening monetary policy. However, the precious metal remains on track to post its largest monthly gain since January.

Spot gold lost 0.4% to $4,436.04 per ounce, marking its weakest level since August 19. U.S. gold futures declined 1% to $4,486.40.

Ricardo Evangelista, a senior analyst at Active Traders, said, “Gold remains under pressure following Kevin Warsh’s hawkish speech on Friday, while the return of tensions between the United States and Iran is heightening inflation concerns, reinforcing expectations that the Federal Reserve will raise interest rates before the end of the year.”

Gold fell more than 3% on Friday, recording its largest single-day drop since June 10, after Warsh stated at the Jackson Hole symposium that the Federal Reserve “has a lot of work to do” if policymakers are not convinced that inflation is trending toward the 2% target.

Data from CME Group’s FedWatch Tool shows that traders now see a 60% probability of the U.S. central bank raising interest rates in September, up from around 36% before Warsh’s comments.

Gold remains up more than 10% this month, its highest level since January, after reaching a more than three-month high of $4,696.18 per ounce last week. The rally was supported by the U.S. Treasury Department’s announcement to double its purchases of long-term bonds to support liquidity, which raised concerns about a decline in the currency’s value.