Gold prices extended declines on Monday as rising expectations of a Federal Reserve rate hike in September and renewed Middle East tensions combined to erode the metal’s appeal.
Federal Reserve Governor Kevin Warsh’s comments last week reinforced concerns that inflation remains stubbornly high, prompting traders to increase bets on a September rate increase. Probabilities for a 25-basis point hike rose from roughly 36% to between 56% and 58% on the CME FedWatch tool following his remarks, before climbing further to 70% on Monday. Higher interest rates reduce the relative attractiveness of non-yielding assets like gold, as the opportunity cost of holding the metal increases.
Geopolitical developments added to the pressure. The U.S. conducted strikes against Iranian targets in the Strait of Hormuz over the weekend—the first such action in about a month—prompting a retaliatory response from Iran. Brent crude oil prices jumped more than 3% in response, while U.S. oil benchmarks followed a similar trajectory, nearing multi-week highs.
The dual headwinds have weighed on gold’s traditional safe-haven bid. Typically, geopolitical risks and inflation concerns support the metal as a hedge, but when inflation is driven by energy prices and the Fed signals a hawkish stance, the rate impact has dominated, analysts noted.
Gold has retraced its recent gains, testing levels last seen in early August. A re-test of the 50-day simple moving average, currently at $4,218 per ounce, appears likely before the metal revisits the recent trading range between $4,200 and $4,000 per ounce.
Investors remain alert to potential further escalation in the Iran conflict, the upcoming U.S. jobs report, and any additional Fed commentary ahead of the September Federal Open Market Committee meeting.
