Gold Dips as Middle East Tensions Lift Oil, Weigh on Rate-Cut Bets

Gold traded near $4,150 an ounce on Wednesday, holding its losses after declining for two consecutive sessions as investors awaited US consumer inflation data for clues on the Federal Reserve’s next policy move. Markets are currently pricing in roughly a 77% probability that the Fed will leave interest rates unchanged this month, while assigning an 88% chance of a rate hike in December. Meanwhile, New York Fed President John Williams indicated that one additional rate hike may be warranted this year, but further monetary tightening is unlikely to be necessary in 2027. Geopolitical tensions also remained in focus as oil prices extended gains amid escalating hostilities between Saudi Arabia and Iran-backed Houthi rebels, raising concerns over Middle East supply disruptions. Separately, the IMF warned of significant risks to global growth and financial stability stemming from a potential end to the AI investment boom, mounting debt levels, and a prolonged conflict in the Middle East.

Gold prices were little changed at around $4,180 an ounce on Tuesday as oil prices ended a three-session rally and the US dollar weakened, while expectations of an interest rate hike by the Federal Reserve this month remained subdued ahead of a busy week of US economic data releases. Investors are awaiting September’s US Consumer Price Index report on Wednesday, followed by the Producer Price Index and retail sales data on Thursday. Markets will also be watching Fed Chair Kevin Warsh’s appearance at the IMF-World Bank annual meetings on Friday for further clues on the central bank’s monetary policy outlook. According to CME’s FedWatch tool, traders are pricing in less than a 20% probability of a Fed rate hike this month, while the likelihood of an increase in December exceeds 85%. Meanwhile, Cleveland Fed President Beth Hammack said the central bank should move “relatively quickly” toward a more restrictive monetary policy stance to bring inflation under control.

Gold held below $4,200 an ounce on Tuesday, remaining under pressure as the US dollar climbed to an 18-month high ahead of key inflation reports that could shape the Federal Reserve’s next interest rate decision. The US consumer price index is due on Wednesday, followed by producer inflation data on Thursday. Markets are pricing in roughly an 80% probability that the Fed will leave interest rates unchanged this month, while assigning nearly an 88% chance of a rate hike in December. Investors also monitored geopolitical tensions as the US considers joining Saudi Arabia in its campaign against Iran-backed Houthi militants in Yemen, while the recently announced Russia-Ukraine “energy ceasefire” has already been violated. These developments have kept oil prices elevated, fueling inflation concerns and increasing expectations of further interest rate hikes.