NEW YORK: Gold prices fell more than 3 percent on Wednesday as fears of a wider US-backed war with Iran stoked concerns about interest rate hikes to curb rising inflation, with investors focusing on key US data for clues on the monetary policy path.
Spot gold was down 3.3 percent at USD4,123.89 per ounce by 11:40 a.m. EDT (1540 GMT), its lowest level since March 23. US gold futures for August delivery shed 3.3 percent to USD4,147.10.
“Markets are in desperate need of some good news after strong payrolls on Friday and President (Donald) Trump’s threat earlier this morning that Iran ‘will pay the price’ for not negotiating a deal,” said Tai Wong, an independent metals trader. Trump said on Wednesday that Iran had taken too long to negotiate a deal and would now “have to pay the price.”
The president later said the US would attack Iran “very hard” if no peace deal is finalized.
Iran launched missile and drone attacks on US bases in Jordan, Kuwait and Bahrain in retaliation for American strikes on Iranian targets around the Strait of Hormuz.
Bullion has been under pressure since the start of the war in late February, as surging oil prices fuel fears of inflation and higher interest rates.
While gold is seen as a hedge against inflation, higher rates typically weigh on the non-yielding metal.
Traders are currently pricing in about a 66 percent chance of a US interest rate hike in December, according to CME Group’s FedWatch tool. The US Labor Department on Wednesday reported that the Consumer Price Index excluding food and energy items gained 0.2 percent on a monthly basis after rising 0.4 percent in April.
The release on Thursday of the US Producer Price Index will provide investors more data to gauge the Federal Reserve’s monetary policy stance.
“Despite recent price consolidation, inflation, central bank buying and currency debasement concerns continue to support gold,” Paul Wong, a market strategist at Sprott Asset Management, said in a note. Spot silver fell 1 percent to USD64.70 per ounce, platinum dropped 2 percent to USD1,692.92, and palladium rose 1.3 percent to USD1,237.34.
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