Gold prices declined on Thursday after reaching a two-week peak the day before due to escalating tensions in the Middle East pushing up oil prices. Investors are keeping an eye on the upcoming Federal Reserve policy meeting for signals on potential interest rate adjustments.
Spot gold dropped by 0.6 percent to $4,103.39 per ounce as of 0713 GMT after hitting its highest level since July 7 at $4,165.87 on Wednesday. Meanwhile, US gold futures for August delivery fell by 1.1 percent to $4,106.40.
Jigar Trivedi, a senior research analyst at IndusInd Securities, noted that the rise in oil prices is contributing to inflation pressures and expectations of Fed rate hikes, which is impacting gold positively amid a weakening dollar.
Oil prices surged to their highest level in over six weeks following the US launching new strikes on Iran and Yemen’s Houthis targeting oil tankers in the Red Sea. The slight 0.1 percent dip in the dollar’s value is making gold more affordable for holders of other currencies.
The increase in oil prices has led to a rise in two-year US Treasury yields to a 17-month high, raising concerns that energy disruptions could spark inflation again, potentially increasing the likelihood of Fed rate hikes.
While the Fed is anticipated to maintain interest rates next week, market futures are generally anticipating at least one rate hike by the end of the year. Traders are currently pricing in a 77 percent probability of a rate increase in September, according to the CME FedWatch Tool.
Higher interest rates typically reduce the attractiveness of gold, which does not yield interest on its own. On the other hand, the European Central Bank is expected to keep interest rates steady on Thursday but could hint at a possible hike in September.
