Gold falls more than 1% as oil-driven inflation bets lift rate-hike odds
Gold prices fell more than 1% on Monday as a rise in oil prices heightened inflation concerns and reinforced expectations of further Federal Reserve interest rate increases.
Spot gold was down 1.5% at $4,223.95 per ounce as of 0117 GMT, while US gold futures fell 1.5% to $4,257.90.
Oil prices rebounded more than 1% after US President Donald Trump said he rejected an Iranian proposal to reopen the Strait of Hormuz and end fighting, while Iran insisted that only diplomacy can solve its conflict with the United States and Israel. Tim Waterer, chief market analyst at KCM Trade, said high bond yields and high oil prices continued to act as a thorn in gold's side, and that oil had risen on mixed signals about oil flows, keeping inflation front and centre for investors.
The Fed raised rates earlier this month, lifting its target rate range by a quarter percentage point to between 3.75% and 4%. Traders are pricing in a 66% chance of a US rate hike in October, according to CME's FedWatch Tool. Higher energy prices can fuel inflation by raising costs across the economy. Gold is widely viewed as a hedge against inflation, but a high interest rate environment increases the opportunity cost of holding the non-yielding metal.
Investors will watch a run of US labour market and inflation data this week, including job openings, the ADP employment report, the Personal Consumption Expenditures price index and nonfarm payrolls. Waterer said stronger-than-expected inflation or employment numbers could keep upward pressure on bond yields and weigh further on gold. Cleveland Fed President Beth Hammack said on Friday she is concerned that persistently high inflation risks conditioning the American public to accept elevated prices as the norm, adding the central bank cannot let that happen. Among other 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.
