Gold hits over 3-week low as MidEast tensions fan rate-hike fears

Gold experienced its lowest price in over three weeks on Wednesday as tensions in the Middle East escalated, driving up oil prices and amplifying concerns about inflation and potential rate hikes. Spot gold dipped by 0.6% to $4,304.01 per ounce, marking its lowest point since August 7. Prices were on track for a fourth consecutive day of losses and remained below the 200-day moving average, a significant technical indicator.

US gold futures for December delivery fell by 1% to $4,350.80. The US dollar remained robust, making metals priced in greenbacks more expensive for buyers holding different currencies.

The US initiated a series of airstrikes against Iran on Tuesday, leading to retaliatory actions from Iran. This marked the most serious escalation in weeks. Oil prices surged for a third consecutive day, while US Treasury yields also increased. This situation exacerbated inflation worries, as a pricier crude oil could perpetuate tight monetary policy expectations and push yields higher, thus limiting any potential rebound for gold.

Despite gold being considered a hedge against inflation, rising interest rates diminish its attractiveness due to its lack of yield. Market analysts, such as Bas Kooijman, CEO and asset manager of DHF Capital S.A., stated that a rebound in oil prices following renewed US-Iran tensions has added to inflation concerns. The pricier crude could continue to tighten monetary policy expectations and drive yields higher, thereby limiting any rebound potential for gold.

While gold is typically viewed as an inflation hedge, higher interest rates diminish its appeal as it does not offer any yield. Traders are pricing in a 67% probability of a rate hike at the Federal Reserve’s policy meeting this month, according to the CME FedWatch Tool. Fed Governor Michael Barr indicated that if inflation does not recede swiftly, it would be time for the central bank to raise rates. Earlier last week, Fed Chairman Kevin Warsh hinted at the prospect of a rate hike.

The awaited ADP employment report was due later in the day, with the more critical nonfarm payrolls data slated for Friday. Kooijman noted that softer figures could alleviate pressure on gold, while stronger data or more hawkish Fed comments might extend the decline. Among other precious metals, spot silver declined by 1% to $63.60 per ounce, platinum slipped by 1% to $1,722.23, and palladium fell by 1.4% to $1,292.21.