Gold slips as oil prices advance, Fed rate-hike voices grow
Gold prices dipped on Monday as an escalation in the Middle East war pushed Brent crude above $90 a barrel, heightening inflation concerns after many U.S. Federal Reserve policymakers signalled that interest rate hikes may be needed to curb price pressures.
Spot gold was down 0.1% at $4,014.53 per ounce, as of 0242 GMT. U.S. gold futures for August delivery were steady at $4,019.80.
The U.S. said it has completed a ninth consecutive night of attacks against Iran after earlier announcing that at least two U.S. military personnel were killed in Jordan, while U.S. allies in the region reported more Iranian attacks on Sunday.
"The weekend escalations increase the risk of a potential full-scale offensive by both sides, which potentially threatens gold prices as the opportunity cost for holding the metal gets higher if this ongoing stagflation fear starts to take hold," said Kelvin Wong, a senior market analyst at OANDA.
Oil prices jumped 3%, with Brent surpassing $90 a barrel, on curbed energy shipments in the Strait of Hormuz. [O/R]
Elevated oil prices can stoke inflation fears and bets of higher-for-longer interest rates. While gold is typically seen as an inflation hedge, high interest rates increase the opportunity cost of holding the non-yielding asset.
Cleveland Fed President Beth Hammack added her voice to a growing chorus of policymakers arguing interest rates may need to rise to beat back persistent inflation, setting up a charged debate at the Fed's next meeting and the possibility of dissents at Chairman Kevin Warsh's second meeting at the helm.
Traders are now pricing a 82% chance of a December interest rate-hike, versus 73% last week, according to the CME FedWatch Tool. [FEDWATCH/]
"On the longer term, I'm more cautious on gold and looking at the key $3,886 level, which if taken out on the downside, could potentially unleash further weakness towards $3,500," Wong added.
Elsewhere, spot silver gained 1.9% to $56.95 per ounce, platinum was up 0.5% at $1,599.97 and palladium eased 0.2% to $1,244.50.
