Gold drops more than 2% on US rate-hike bets

On Monday, gold prices experienced a decline of over 2 percent, driven by rising oil prices and heightened inflation concerns that bolstered expectations for additional Federal Reserve interest rate hikes. As of 06:27 GMT, spot gold was trading at $4,171.85 per ounce, marking its lowest level since early August. US gold futures also fell by 2.7 percent to $4,204.30.

The combination of high bond yields and elevated oil prices continues to pose challenges for gold. Oil prices have surged due to mixed signals regarding oil flows, which keeps inflation at the forefront of investors' minds, according to Tim Waterer, chief market analyst at KCM Trade. Iran reiterated that diplomacy is the only solution to its conflict with the United States and Israel, following US President Donald Trump's assertion that he rejects an Iranian proposal to reopen the Strait of Hormuz and resolve the fighting.

Oil prices have been on the rise. Earlier this month, the Federal Reserve raised rates by a quarter percentage point, raising its target rate range to between 3.75 percent and 4 percent. Traders now estimate a 69 percent probability of a US rate hike in October, as per CME's FedWatch Tool. Higher energy prices contribute to inflation by increasing costs throughout the economy.

Gold is typically considered a hedge against inflation, but an environment with high interest rates amplifies the opportunity cost of holding the non-yielding metal. Investors will closely monitor a series of US labor market and inflation data this week, including 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 could further weigh on gold, according to Waterer. Cleveland Fed President Beth Hammack expressed concern on Friday that persistent high inflation risks could condition the American public to view elevated prices as the norm, warning that the central bank cannot allow this to happen.

Silver, platinum, and palladium also saw declines, with spot silver falling 4.3 percent to $61.51 per ounce, platinum down 2.8 percent to $1,728.43, and palladium losing 3.1 percent to $1,227.67.