Gold slips as renewed Mideast tensions keep Fed hike bets alive

Gold prices slipped as heightened Middle East tensions sparked worries about inflationary pressures that could prompt the US Federal Reserve to raise interest rates, a factor weighing on the precious metal. Bullion dipped 0.1% as US crude surged past $85 a barrel and Treasury yields climbed higher. The US central bank may need to hike rates to curb price pressures, which typically have a negative impact on non-yielding gold.

The metal experienced a decline in the previous session following hawkish remarks from Fed Chair Kevin Warsh, who vowed to combat inflation, leading traders to anticipate a greater than 60% probability of a rate increase at the Fed's upcoming September meeting. Despite a 10% increase in gold prices in August, marking the largest monthly gain since January, the metal still faces headwinds from the "debasement trade" fueled by concerns over rising sovereign debt and currency devaluation.

This trade gained momentum after Treasury announced mid-month plans to boost bond buybacks, reigniting interest in the metal. Experts, such as MKS PAMP's Nicky Shiels, suggest the debasement trade will persist into September as the Treasury initiates bond buybacks and in the lead-up to the Fed meeting. Recent tensions between the US and Iran, which saw the latter strike the UAE and Jordan for the first time in about a month, further exacerbated concerns about geopolitical instability.