Gold falls to over one-month low as oil rally, inflation data boost rate hike bets
BENGALURU — Gold fell to a more than one-month low on Monday, as a rally in oil prices and stronger-than-expected inflation data on Friday bolstered expectations of a rate hike at the United States Federal Reserve's (Fed) policy meeting...
Gold prices plummeted to a nearly one-month low on Monday as oil prices surged by over 4% and stronger-than-expected inflation data fueled expectations of an increased interest rate from the United States Federal Reserve. At 9:28 am EDT, spot gold was trading at $4,271.59 per ounce, marking its lowest price since August 7. US gold futures also dropped 2.2% to $4,311.20.
Jim Wyckoff, a market analyst at American Gold Exchange, stated that the sharp rise in oil prices is driving inflation expectations, which suggest central banks worldwide will need to tighten monetary policies to control inflation, thereby negatively impacting metal prices. Most economists surveyed by Reuters anticipate the Fed will raise interest rates during their policy meeting on Wednesday and continue to increase rates throughout March, ending a period of near-stagnant expectations.
The Consumer Price Index rose by 0.4% last month, following a modest increase of 0.1% in July, according to the Bureau of Labor Statistics. Traders are pricing an 89% probability of a rate hike at the Fed's meeting, as per the CME FedWatch Tool. The Bank of Japan is also expected to increase interest rates on Friday, amid surging energy prices and a lack of signs of easing tensions in the Middle East.
Although gold is generally considered an inflation hedge, higher interest rates diminish its attractiveness as a non-yielding asset. Oil prices surged about 4% on Monday due to recent strikes on Saudi Arabian energy and civilian infrastructure, as well as Iranian attacks on ships in the Gulf, exacerbating supply concerns following the closure of a crucial Saudi oil pipeline.
The postponement of a meeting between Iran and other Gulf powers further strained Middle East diplomacy. Meanwhile, the dollar climbed to a two-week high, making greenback-priced bullion more expensive for holders of other currencies. Silver prices fell 2.5% to $62.88 per ounce, platinum dropped 2% to $1,759.87, and palladium declined 0.6% to $1,291.50.
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