Gold prices fell sharply on Thursday, retreating from a two-week high, as rising tensions in the Middle East and surging oil prices stoked inflation expectations and increased the likelihood of monetary policy tightening, reports the website infohub.kz.
Spot gold fell 2.1% to $4,043.14 an ounce. A day earlier, the metal had reached its highest level since July 7. US gold futures for August delivery dropped about 2.5% to $4,050.20 an ounce.
A stronger dollar also weighed on prices: the US currency rose 0.3%, making dollar-denominated gold less affordable for foreign buyers. The yield on 10-year US Treasury notes climbed to its highest level in over a year.
“Higher oil prices push bond yields higher amid expectations that central banks will be unable to cut rates due to persistent inflation. And higher bond yields are negative for gold and silver because these metals offer no interest income,” said Jim Wyckoff, market analyst at the American Gold Exchange.
Brent crude oil prices neared $100 a barrel for the first time since late May after Yemen's Houthi group claimed engagement with two Saudi oil tankers. This heightened fears that global oil supply disruptions could spread beyond the Strait of Hormuz region.
The rise in oil prices adds further pressure on gold, as it increases the likelihood that interest rates will stay higher for longer, diminishing the appeal of the non-yielding precious metal.
Investors’ attention now turns to the US Federal Reserve’s interest rate decision and comments from Fed Chairman Kevin Warsh after the central bank's two-day meeting next week. According to CME's FedWatch Tool, traders see an 83% probability of a rate hike in September, up from 68% a day earlier.
“The market expects rates to remain unchanged next week, and the Fed's rhetoric could turn more dovish. But if the central bank unexpectedly takes a hawkish or dovish stance, markets will react quickly,” Wyckoff noted.
Other precious metals also declined: spot silver fell 3.8% to $57.44 an ounce, platinum dropped 3.3% to $1,590.58, and palladium slipped 2.7% to $1,256.50 an ounce.