Gold slips as oil rally fans rate hike bets ahead of Fed meeting

Gold prices fell on Monday as concerns over inflation surged due to a rise in oil prices, increasing the likelihood that the US Federal Reserve may hike interest rates during its upcoming policy meeting. Spot gold declined 0.5% to $4,327.09 per ounce, following a third straight weekly drop on Friday. US gold futures also decreased 0.9% to $4,367.50.

Analyst Tim Waterer noted that "Gold isn't finding conditions to its liking," explaining that "rising energy prices plus climbing rate expectations ahead of the Fed and BoJ meetings are delivering a clear yield headwind for gold." Meanwhile, US consumer prices surged in August, and a key measure of underlying inflation saw its largest increase in four months, further reinforcing the belief that the Fed will raise interest rates at its meeting on Tuesday and Wednesday.

The chance of a rate hike now stands at 87%, up from 67% prior to the latest inflation data, according to the CME FedWatch Tool. The Bank of Japan is also expected to raise rates on Friday, as persistent inflation and strong economic growth have raised the possibility of additional rate hikes by major central banks. Oil prices surged more than 2% on Monday after Houthi strikes on Saudi Arabia and Iranian attacks on ships in the Gulf worsened supply worries following the closure of a key Saudi oil pipeline.

Diplomacy in West Asia also appeared to falter after a planned meeting between Iran and other Gulf states was postponed. Silver slipped 1% to $63.80 per ounce, platinum fell 0.2% to $1,792.59, and palladium declined 0.4% to $1,293.86.