Gold prices plummeted by 3 percent on Monday, reaching a more than seven-week low due to surging oil prices, which fueled concerns about inflation and supported arguments for sustained interest rates. The spot gold price dropped to $4,156.45 per ounce, marking its lowest level since August 5, while US gold futures for December delivery also declined by 3.1 percent to $4,188.80.
The strength of the dollar contributed to the decline as it made gold more costly for holders of other currencies, alongside increasing US Treasury yields. Analyst Giovanni Staunovo from UBS highlighted that the recent weakness in gold was primarily driven by the rise in oil prices and the growing likelihood of additional rate hikes in the US, which could keep real yields and the dollar high, making non-yielding gold less attractive and leading to heightened volatility in the short term.
The resurgence of Brent crude oil followed US President Donald Trump’s rejection of a peace deal with Iran, maintaining tensions in the Middle East and potentially pushing inflation up through increased energy costs. Market analysis indicated a 70.3 percent probability of a Federal Reserve rate hike in October, as the Fed previously raised rates by a quarter point and hinted at further increments.
Cleveland Fed chief Beth Hammack expressed concerns about sustained high inflation risks potentially conditioning the public to accept elevated prices as the norm, emphasizing the need for the central bank to prevent this scenario. Attention is now focused on forthcoming US economic reports, including job openings, the ADP employment report, Personal Consumption Expenditures (PCE) data, and nonfarm payrolls, expected to be released throughout the week.
