Gold falls as Middle East hostilities revive inflation woes

[BENGALURU] Gold fell on Thursday (Jul 9), hovering near a one-week low set in the previous session, as renewed US-Iran hostilities lifted oil prices and reignited concerns about inflation and higher-for-longer interest rates.

Spot gold fell 0.4 per cent to US$4,060.46 per ounce by 0343 GMT, after dropping to its lowest since Jul 1 on Wednesday.

US gold futures for August delivery were down 0.3 per cent at US$4,069.80.

The US military said on Wednesday it launched fresh strikes on Iran to keep the Strait of Hormuz open to shipping, triggering Iranian attacks on Kuwait and Bahrain in the latest escalation to derail efforts to end the war.

Oil prices extended gains on Thursday.

“The catalyst that is supporting this trend to the downside for gold is a repricing of a second interest rate hike by the Federal Reserve to come in as early as Q1 next year,” said Kelvin Wong, a senior market analyst at Oanda.

“After yesterday’s skirmish, that temporary ceasefire agreement between US and Iran is on shaky ground right now, so things could turn pretty fluid again.”

Markets are pricing a 68 per cent chance of an interest rate hike in September, and see an 87 per cent chance of an increase in January 2027, the CME FedWatch tool showed.

Concerns about high inflation also mounted at the US central bank’s meeting last month, as officials followed Fed chairman Kevin Warsh’s lead to a more stripped-down policy statement even amid concerns that price increases were broadening and might require interest rate hikes.

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While gold is seen as an inflation hedge, high interest rates tend to weigh on the non-yielding asset. Bank of America said it is reducing its 2026 average gold forecast by 14 per cent to US$4,360 an ounce, citing a more hawkish Fed.

Elsewhere, spot silver fell 0.9 per cent to US$57.77 per ounce, while platinum rose 0.8 per cent to US$1,591.13 and palladium gained 0.8 per cent to US$1,223.95. REUTERS