Gold Plummets to Over 3-Week Low Amid Middle East Tensions and Rate-Hike Fears

POLICY WIRE — Bengaluru, India — Gold prices experienced a significant decline on Wednesday, reaching their lowest point in over three weeks. This drop was driven by the escalating conflict in the Middle East, which has led to a surge in oil prices and heightened fears of inflation and potential rate hikes. Investors are now closely watching the upcoming U.S. jobs data for further market direction.

Spot gold decreased by 0.6%, settling at $4,304.01 per ounce by 0017 GMT. This marks the metal’s lowest price since August 7. Gold is on track for its fourth consecutive session of losses and remains below the 200-day moving average, a key technical indicator.

U.S. gold futures for December delivery also saw a 1% decline, closing at $4,350.80. The U.S. dollar remained strong, making dollar-priced metals more expensive for international buyers.

The recent U.S. airstrikes against Iran, followed by Iranian retaliation, have significantly escalated tensions. This has resulted in a third consecutive session of rising oil prices and increased U.S. Treasury yields.

Bas Kooijman, CEO and asset manager of DHF Capital S.A., noted that the rebound in oil prices due to renewed U.S.-Iran tensions has added to inflation concerns. He added that a more expensive crude could tighten monetary policy expectations and drive yields higher, limiting gold’s rebound potential.

Although gold is typically viewed as a hedge against inflation, higher interest rates diminish its appeal since it does not offer a yield. Traders are currently pricing in a 67% chance of a rate hike at the Federal Reserve’s policy meeting this month, according to the CME FedWatch Tool.

Fed Governor Michael Barr indicated that if inflation does not cool down quickly, the central bank may need to raise rates. This sentiment was echoed by Fed Chairman Kevin Warsh, who also hinted at the possibility of a rate hike.

The ADP employment report is scheduled for release later today, with the more critical nonfarm payrolls data due on Friday. Kooijman suggested that softer employment figures could alleviate some pressure on gold, while stronger data or more hawkish comments from the Fed could further extend the metal’s decline.

Other precious metals also saw declines. Spot silver lost 1% to $63.60 per ounce, platinum edged 1% lower to $1,722.23, and palladium fell 1.4% to $1,292.21.

Reporting by Policy-Wire (PW)