LONDON: Gold prices were steady on Monday, as market participants weighed developments in the US-Iran conflict and their implications for oil prices, while US Federal Reserve policymakers hinted interest rate hikes may be needed to curb inflationary pressure.
Spot gold was little changed at USD4,018.75 per ounce, as of 0911 GMT. US gold futures for August delivery gained 0.1percent to USD4,023.20. “Gold remains negatively correlated to oil prices, with market participants closely tracking developments in the Middle East,” UBS analyst Giovanni Staunovo said.
US forces hit Iran for a ninth consecutive day as concerns grew over shipping through the Strait of Hormuz after Iran said two oil tankers had exploded and been immobilised.
Oil prices pared gains, after rising to an over one-month high earlier in the session, as Iran’s foreign ministry spokesperson said negotiations with US could be pursued based on national interests.
Elevated oil prices stoke inflation fears and add to bets of higher-for-longer interest rates. While gold is typically seen as an inflation hedge, high interest rates tend to diminish the appeal of 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 an 80percent chance of a December interest-rate hike, versus 73percent last week, according to the CME FedWatch tool.
“We expect a weaker dollar to support gold prices in 6-12 months, with the yellow metal expected to move again above the USD5,000/oz mark,” Staunovo said.
Elsewhere, spot silver gained 1.6percent to USD56.79 per ounce, platinum was up 0.2percent at USD1,595.08, and palladium rose 1.3percent to USD1,264.62.
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