Gold prices declined on Thursday after reaching a two-week peak the day before, driven by escalating tensions in the Middle East that pushed oil prices higher. Traders were also anticipating the upcoming Federal Reserve policy meeting for signals regarding potential interest rate adjustments.
The price of spot gold dropped by 0.6 percent to $4,103.39 per ounce as of 0713 GMT, following its peak on Wednesday at $4,165.87, the highest level since July 7. Meanwhile, US gold futures for August delivery fell by 1.1 percent to $4,106.40.
Jigar Trivedi, a senior research analyst at IndusInd Securities, noted that the increase in oil prices, coupled with inflation concerns and expectations of Fed rate hikes, contributed to the downward pressure on gold prices. This was further influenced by the weakening of the dollar, which typically boosts the appeal of gold priced in other currencies.
Amidst the conflict in the Middle East, oil prices surged to their highest levels in over six weeks. The US initiated new strikes on Iran while Yemen’s Houthis targeted oil tankers in the Red Sea. The slight 0.1 percent decline in the dollar made gold more accessible for holders of alternative currencies.
Rising oil prices also led two-year US Treasury yields, sensitive to interest rates, to climb to a 17-month high. Concerns over potential energy disruptions reigniting inflation heightened expectations of future Fed rate hikes.
While the Federal Reserve is expected to maintain current interest rates at the upcoming meeting, market futures indicate a likelihood of at least one rate hike before the year ends. Traders have priced in a 77 percent probability of a rate increase in September, as per the CME FedWatch Tool.
Higher interest rates typically reduce the attractiveness of non-interest-bearing assets like gold. The European Central Bank is expected to keep interest rates steady on Thursday but may signal a potential hike in September.