Gold trades near seven-week low as rate hike pressure mounts

Gold prices have plummeted to a seven-week low after the US Federal Reserve increased interest rates for the first time since 2023. The decline in bullion is due to ongoing tensions between the US and Iran over the Strait of Hormuz, which has kept energy costs high and put pressure on the Fed to raise rates. The metal is currently trading around US$4,125 per ounce, after falling 4% on Monday to a seven-week low.

Higher oil prices, driven by Iranian officials expressing doubts about reaching a deal to reopen the Strait before the US midterm elections, have further fueled the sell-off. Treasury yields have surged, with the 10-year rate reaching a 19-year high, making holding non-yielding assets like gold less appealing. The US bond market's sell-off intensified after US President Donald Trump rejected Iran's proposal to reopen the Strait, which could prolong the energy shock.

The decline in gold prices comes after months of tension between the US and Iran since late February, causing increased borrowing costs and economic risks. Fed Governor Lisa Cook warned that high energy prices and the potential productivity gains from artificial intelligence may not be enough to offset near-term inflation pressures, hinting at more rate hikes.

Investors are closely monitoring upcoming data releases, including personal consumption expenditure data on Wednesday and non-farm payrolls on Friday, for further clues on the Fed's rate policy.