Gold slips near $4,160 as Middle East tensions fuel rate-hike concerns

Gold prices declined on Tuesday as Middle East tensions increased, heightening fears of further energy supply disruptions and pushing inflation risks higher. The price of gold dropped 0.2% to $4,163.00 per ounce, while gold futures fell 0.1% to $4,186.45. Silver and platinum also experienced a decline in value. The U.S. Dollar Index experienced a slight decrease of 0.1% to 102.54.

The day before, gold had fallen around 0.5% to $4,160. As the conflict escalated, concerns grew that energy supply disruptions could lead to higher oil prices and prolonged inflationary pressures. Since the beginning of the U.S.-Iran war in late February, gold has lost nearly 20% of its value due to global inflation concerns and tighter monetary policy.

Higher borrowing costs typically make gold less attractive compared to interest-bearing assets. Early trading in the Asian session saw gold at $4,156.27 per ounce. Traders are awaiting U.S. inflation data due on Wednesday, which may provide insight into the Federal Reserve's next policy move. Interest-rate swaps suggest roughly a 20% chance of another rate hike during the Fed's October meeting, and markets are pricing in one more increase before the end of the year.

Federal Reserve Bank of Cleveland President Beth Hammack recently stated that smaller, more frequent adjustments to monetary policy could help keep inflation expectations in check, although she did not advocate for an interest rate increase in October. Policymakers are grappling with persistent inflation risks and elevated borrowing costs, and further increases in energy prices could complicate inflation outlooks and reinforce the need for additional monetary tightening.

The upcoming U.S. consumer price index report on Wednesday is expected to be a crucial factor for precious metals. Stronger-than-expected inflation data could bolster arguments for further interest rate hikes and negatively impact non-interest-bearing gold, while softer data might alleviate some concerns about additional rate increases.

Investors are currently evaluating the impact of Middle East tensions on oil prices, inflation, and the Federal Reserve's policy outlook, as both factors are likely to influence demand for gold.