Gold subdued on inflation worries, rate hike expectations

Gold prices declined on Wednesday as worries about escalating Middle East tensions potentially leading to higher inflation fuelled expectations of higher interest rates, according to data expected later in the week. Spot gold fell 0.1% to $4,349.44 per ounce, while US gold futures for December delivery dropped 1% to $4,393.30. Traders are eagerly awaiting US producer price index data set for release on Thursday, with consumer price index data to follow on Friday.

The Middle East conflict escalated when Iranian-backed Houthis in Yemen attacked several Saudi cities, drawing in a US ally to the fray. In response, US forces targeted multiple Iranian oil tankers, while Iran retaliated by striking a US base in Jordan. Brent crude prices surged for a fourth consecutive day, putting upward pressure on inflation as higher energy costs ripple through the economy.

According to the CME FedWatch Tool, the majority of traders anticipate the Federal Reserve to raise interest rates at its next policy meeting. Despite gold's reputation as a hedge against inflation, higher rates make non-interest-bearing bullion less attractive. In the meantime, the Bank of England will maintain Bank Rate at 3.75% for the rest of the year and through at least mid-2027, according to a Reuters poll of economists, who still believe inflation is not robust enough to warrant higher borrowing costs from a majority of policymakers.

Silver fell 0.1% to $65.84 per ounce, platinum rose 0.6% to $1,824.53, and palladium dipped 0.2% to $1,345.83.