Gold Set for Biggest Weekly Drop Since 1983

Gold slipped below $4,100 an ounce on Monday, remaining under pressure as renewed missile strikes between the US and Iran drove oil prices higher, fueling expectations of interest-rate hikes to curb inflation. The US carried out its fourth strike in a week against Iran on Sunday in retaliation for an Iranian attack on a Cyprus-flagged container ship. Tehran declared that the Strait of Hormuz would be closed "until further notice," though the claim was dismissed by the US Central Command. Investors are also awaiting key US inflation data due this week for further clues on the Federal Reserve's policy outlook. Markets currently expect the Fed to deliver one more interest-rate hike before the end of the year. Meanwhile, Fed Chair Kevin Warsh is scheduled to make his first appearance before the US Congress on Tuesday.

Gold edged lower to $4,100 an ounce on Friday, ending the week down about 1.5%, as rising crude oil prices and escalating US-Iran tensions raised concerns that the Federal Reserve may maintain tight monetary policy for longer. Oil surged 5% this week after renewed strikes between US and Iranian forces, heightening inflation fears and prompting markets to price in a near 60% chance of a September Fed rate hike. Investors will closely watch US inflation data due next week and Fed Chair Kevin Warsh’s testimony for further policy cues. Minutes from the Fed’s June meeting revealed growing inflation concerns, with some policymakers having favored a rate hike before rates were left unchanged. Meanwhile, gold faced a wide discount in India this week due to price volatility, while demand in China remained steady. China’s central bank reported its largest monthly increase in gold reserves in over 2-1/2 years in June.

Gold steadied above $4,100 an ounce on Friday and was on track to finish the volatile week little changed, as investors continued to assess developments in the Middle East and their potential impact on inflation and monetary policy. Reports indicated that the US and Iran will continue peace talks despite a recent escalation in hostilities that disrupted energy flows through the Strait of Hormuz and renewed concerns over inflation. US forces carried out strikes on targets in Iran over two days in response to recent attacks on vessels in Hormuz, prompting retaliatory strikes by Tehran on US bases across the region. Markets continue to expect the Federal Reserve to raise interest rates at least once this year, although the policy outlook remains highly uncertain. Meanwhile, New York Fed President John Williams said that, among the factors driving inflation in the US, he is most focused on demand fueled by artificial intelligence.