Gold Pressured by Escalating Middle East Conflict

Gold hovered around $4,030 an ounce on Monday as investors assessed the evolving US-Iran conflict and its implications for oil prices, inflation, and monetary policy. US forces continued striking Iranian targets amid concerns over shipping through the Strait of Hormuz after Tehran reported that two oil tankers had exploded and been immobilized. Oil prices, which had climbed to a more than one-month high earlier in the session, later eased after Iran's foreign ministry said negotiations with the US could still be pursued if they aligned with the country's national interests. Even so, elevated energy prices continue to fuel inflation concerns and reinforce expectations that US interest rates will remain higher for longer. Meanwhile, Cleveland Fed President Beth Hammack joined a growing chorus of policymakers suggesting further rate hikes may be needed to contain persistent inflation. Markets are now pricing an 80% probability of a December Fed rate hike, up from 73% a week ago.

Gold fell toward $4,000 an ounce on Monday, hovering close to to nine-month lows as escalating attacks between the US and Iran drove oil prices higher, stoking concerns over inflation and the prospect of interest rate hikes. The US military said it carried out fresh airstrikes against Iran on Sunday following the deaths of three American service members, while Tehran declared that its ceasefire with the US had effectively collapsed and said it intercepted four vessels transiting the Strait of Hormuz over the weekend. Oil prices have now surged about 30% from their July lows, raising the risk that central banks may tighten monetary policy to contain inflation. Meanwhile, Cleveland Fed President Beth Hammack on Friday joined a growing number of Fed officials warning about persistent inflation. Markets are now pricing in about a 53% chance of a Fed rate hike in September, up from 47% a day earlier.

Gold remained below $4,000 an ounce on Friday and was down more than 3% for the week, as escalating US-Iran tensions drove oil prices higher, fueling inflation concerns and strengthening expectations that the Federal Reserve will keep interest rates elevated. Geopolitical tensions intensified after Tehran launched fresh strikes on US facilities in the Middle East, following a sixth consecutive night of US attacks on Iranian military targets that continued to disrupt traffic through the Strait of Hormuz. Fed officials also reinforced the hawkish outlook. Dallas Fed President Lorie Logan called for another rate hike, while Vice Chair Philip Jefferson said he would support tighter policy if inflation failed to improve in the near term. Markets are now pricing in roughly a 50% chance of a September rate increase. On the data front, US consumer and producer prices both declined in June, largely due to lower energy costs, while import prices unexpectedly rose.