Gold hits 7-week low as oil-driven inflation fears boost rate-hike bets

NEW YORK: Gold fell more than 3percent on Monday to touch its lowest in over seven weeks, as higher oil prices stoked inflation fears, bolstering the case for elevated interest rates.

Spot gold was down 3.1percent at USD4,155.67 per ounce, as of 1031 GMT, hitting its lowest since August 5. US gold futures for December delivery fell 3.1percent to USD4,188.10.

The dollar held firm, making greenback-priced bullion more expensive for holders of other currencies, while US Treasury yields extended gains.

“Higher oil prices and the increased probability of further US rate hikes being priced in by market participants are the main drivers behind gold’s recent weakness,” said UBS analyst Giovanni Staunovo. “This backdrop could keep US real yields and the US dollar elevated, raising the opportunity cost of holding non-yielding gold and contributing to further near-term volatility in the precious metal.” Brent crude oil rebounded after US President Donald Trump rejected a peace deal from Iran to resolve their conflict and reopen the Strait of Hormuz, keeping tensions in the Middle East elevated. Rising energy costs tend to drive inflation higher by lifting prices across the economy.

Traders see a 70.3percent chance of a Fed rate hike in October, CME’s FedWatch Tool showed. The US central bank earlier this month lifted rates by a quarter percentage point and indicated that additional increases are likely.

On Friday, Cleveland Fed chief Beth Hammack said she is concerned that persistently high inflation risks could condition the American public to accept elevated prices as the norm, adding the central bank cannot let that happen.

Focus is now on a series of US economic releases scheduled for this week, including job openings, the ADP employment report, Personal Consumption Expenditures (PCE) readings and nonfarm payrolls.

Among other metals, spot silver fell 4.6percent to USD61.32 per ounce, platinum declined 2.4percent to USD1,735.95, and palladium lost 3.4percent to USD1,224.39.