Gold falls to two-week low as escalating Middle East tensions reinforce US rate-hike bets

GOLD fell 2 per cent to a more than two-week low on Thursday (Jul 16), as escalating Middle East tensions pushed oil prices and US Treasury yields higher, heightening inflation concerns and reinforcing expectations of elevated US interest rates.

Spot gold was down 1.9 per cent at US$3,984.64 per ounce by 2.05 pm EDT, after falling as much as 2 per cent and touching its lowest since Jul 1 earlier in the session. US gold futures settled 1.5 per cent to US$3,992.10.

Oil prices remained near a one month-high as concerns over Middle East energy supplies increased after Iran asked Yemen’s Houthis to stand ready to close the Red Sea oil route if the US strikes Iranian power infrastructure.

Higher oil prices stoke inflation concerns, raising expectations of elevated interest rates and denting gold’s appeal as a non-yielding asset.

“Oil prices yet again have moved higher, and with the higher Brent levels, I think there’s continued expectations that US yields are likely to go higher, probably maybe even a rate hike as early as September,” which is pressuring gold, said Bart Melek, global head of commodity strategy at TD Securities.

Traders are now pricing in about a 53 per cent chance that the US Federal Reserve will hike rates in September, according to the CME FedWatch Tool.

Yields on the benchmark 10-year US Treasury note drifted higher. The US dollar gained 0.2 per cent, making bullion more expensive for overseas buyers.

Fed Chair Kevin Warsh on Jul 14 declared his determination to bring inflation down without specifically hinting at how. Meanwhile, data released on Tuesday showed that US consumer inflation slowed in June, while data from Wednesday showed a decline in the producer price index.

“Even if some of the near-term economic data softens, persistently high energy prices would make it difficult for the Fed to adopt a more dovish stance. For the same reason, investors are preferring the dollar over the zero-yielding gold,” Fawad Razaqzada, market analyst at Forex.com, said in a note.

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Spot silver dropped 3.6 per cent to US$55.68 per ounce, platinum slid 3.1 per cent to US$1,621.83 and palladium dipped 4.1 per cent to US$1,260.70. REUTERS