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

Gold prices fell on Monday (Sept 14) due to a surge in oil prices, which raised inflation concerns and increased the likelihood of the US Federal Reserve raising interest rates at its upcoming policy meeting. Spot gold dropped 0.6 percent to US$4,321.26 per ounce by 0724 GMT, after declining for three weeks in a row. US gold futures also decreased by 1.1 percent to US$4,361.20.

Tim Waterer, the chief market analyst at KCM Trade, explained that gold was not benefiting from the current conditions. The rise in energy prices, coupled with the expectation of rate hikes before the Federal Reserve and Bank of Japan meetings, is creating a significant headwind for gold. Waterer added that although dips should still attract buyers looking for an uncertainty hedge, geopolitical tensions and central bank policies remain uncertain.

Recent data revealed that US consumer prices surged in August, with a substantial increase in a key measure of underlying inflation for the fourth month in a row. This has led traders to price an 87 percent chance of a rate hike at the Federal Reserve's policy meeting on Tuesday and Wednesday, up from around 67 percent prior to the inflation data release last week.

The Bank of Japan (BOJ) is also expected to raise interest rates on Friday, given the persistent inflation and robust economic growth, which suggest further rate hikes by major central banks. The situation is exacerbated by rising energy prices and minimal signs of easing tensions in the Middle East, fueled by ongoing Houthi strikes in Saudi Arabia and Iranian attacks on ships in the Gulf, which have further strained supply conditions following the closure of a critical Saudi oil pipeline.

While gold is generally viewed as an inflation hedge, higher interest rates typically diminish the appeal of non-yielding bullion. Other precious metals also experienced a decline in Monday's trading, with spot silver falling 1.3 percent to US$63.63 per ounce, platinum decreasing 0.4 percent to US$1,789.35, and palladium dropping 0.4 percent to US$1,293.46.