Gold Slumps as Rate-Hike Expectations Strengthen
Synopsis
The precious metal is set for its biggest weekly drop in more than a month as inflation risks dampen hopes of interest rate cuts.
Key Highlights
- Gold is on track for the biggest weekly drop in six weeks, down nearly 2.6% this week.
- Inflation fears, high interest rates & rising oil prices.
- Traders priced in a 58% probability of a September US interest rate increase.
Gold climbed on Friday but was headed for its largest weekly fall since early June, as firmer oil and rising US-Iran tensions revived inflation fears and reinforced Fed monetary policy tightening expectations.
Spot gold rose 1% to US$4,011.29 per ounce, while US gold futures settled up 0.7% at US$4,018.80. However, the precious metal has shed nearly 2.6% since earlier this week.
Inflation Fears Weigh on Gold
Gold prices have been dented by a firmer dollar and increasing concerns over inflation abroad. Brent crude oil gained nearly 16% this week alone, and its surge has stoked fears that inflation may remain hotter for longer, keeping interest rates higher for an extended period.
According to the CME FedWatch Tool, market participants currently price in a 58% chance of a September US rate hike.
Geopolitical Tensions Continue
The recent moves come as the US broadened its military campaign against Iran and, in return, Iran struck bases housing US personnel elsewhere in the Middle East.
Goldman Sachs said geopolitical tensions could be an incentive for more private investors to raise their allocations to gold as part of portfolio diversification, although prices pulled back slightly during the week. The other precious metals followed suit in ending the week lower, leaving silver, platinum and palladium all heading for weekly losses.
Source: Business Times
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