Gold declines below $4,000 as higher oil prices reinforce Fed rate-hike expectations

Gold prices fell below $4,000 during the early Asian session on Monday, as higher oil prices reinforced expectations of Federal Reserve rate hikes. The precious metal remains under pressure near its lowest level since July, as elevated energy prices raise inflation concerns before the Fed's next policy meeting. WTI crude oil reached a five-month high after Houthi attacks in Saudi Arabia heightened worries about further energy supply disruptions.

The relationship between gold, oil prices, and interest rates is complex, with higher rates typically making yield-bearing assets more appealing and weighing on gold. Despite this, gold continued to weaken even as US Treasury yields fell sharply, indicating that neither lower yields nor geopolitical uncertainty has been enough to support the metal.

Strategists at OCBC remain cautious in the near term, as gold struggles to respond positively to the recent decline in yields. Central banks, which are the largest holders of gold, are diversifying their reserves to improve the perceived strength of their economies and currencies. In 2022, central banks added 1,136 tonnes of gold worth around $70 billion to their reserves, the highest yearly purchase since records began.

However, gold's inverse correlation with the US Dollar and US Treasuries, both major safe-haven assets, remains a key factor in its price dynamics.