Gold drops more than 1% on US rate-hike bets

Gold prices plummeted more than 1% on Monday as inflation worries intensified, fuelled by surging oil prices and the likelihood of additional Federal Reserve interest rate hikes. Spot gold slipped 1.5% to $4,223.95 per ounce, while US gold futures declined 1.5% to $4,257.90. "The combination of high bond yields and oil prices is continuing to weigh on gold," remarked Tim Waterer, chief market analyst at KCM Trade.

Iran maintained that diplomacy alone can resolve its conflict with the United States and Israel, following US President Donald Trump's rejection of an Iranian suggestion to reopen the Strait of Hormuz and end the ongoing fighting. Oil prices surged over 1%. The Federal Reserve had raised interest rates earlier in the month, expanding its target range by a quarter point to 3.75%-4%.

Traders now estimate a 66% probability of a US rate increase in October, according to CME’s FedWatch Tool. Elevated energy costs can spur inflation by increasing expenses throughout the economy. While gold is traditionally considered a hedge against inflation, a high interest rate atmosphere raises the opportunity cost of owning the non-yielding asset.

Investors will be closely monitoring a series of US labor market and inflation data this week, encompassing job openings, the ADP employment report, the Personal Consumption Expenditures (PCE) price index, and nonfarm payrolls. "If inflation or employment figures exceed expectations, upward pressure on bond yields and further downside risks for gold could persist," Waterer cautioned.

Cleveland Fed President Beth Hammack expressed concern on Friday that perpetual high inflation could condition the American public to view elevated prices as the norm, warning the central bank cannot allow this to occur. Among other precious metals, spot silver dropped 2.6% to $62.64 per ounce, platinum declined 2.1% to $1,741.45, and palladium fell 2.1% to $1,239.95.