Gold prices remained lower on Monday but recovered from their session lows as investors balanced renewed geopolitical tensions in the Middle East against growing expectations that higher energy prices could keep U.S. interest rates elevated.
Although demand for safe-haven assets increased following the latest military exchanges between the United States and Iran, rising Treasury yields and a firmer U.S. dollar continued to weigh on precious metals.
Precious Metals Trade Lower
At 01:05 ET (05:05 GMT), spot gold (XAU/USD) was down 1.54% at $4,057.76 an ounce, while Gold Futures fell 1.17% to $4,065.45 an ounce.
Silver (XAG/USD) declined 2.80% to $58.19 an ounce, and platinum (XPT/USD) lost 1.61% to trade at $1,604.60 an ounce.
Geopolitical Risks Support Safe-Haven Interest
Market sentiment remained cautious after fresh military action between Washington and Tehran over the weekend.
The United States launched another series of strikes against Iranian targets following an attack on a Cyprus-flagged commercial vessel in the Strait of Hormuz.
Iran subsequently stated that the strategic waterway would remain closed “until further notice,” although U.S. officials disputed that claim, highlighting the continuing uncertainty surrounding ceasefire negotiations.
Rising Oil Prices Cloud the Inflation Outlook
Oil prices remained more than 3% higher after easing from an earlier rally approaching 5%, as traders continued to price in the possibility of supply disruptions through the Strait of Hormuz.
Higher energy prices have revived concerns that inflation could remain persistent, increasing expectations that the Federal Reserve may keep monetary policy restrictive for longer.
Higher interest rates and a stronger dollar generally reduce the appeal of non-yielding assets such as gold.
Minutes from the Federal Reserve’s June meeting, released last week, showed that several policymakers believed there was a case for further rate increases, while inflation remained a greater concern than labour market weakness.
The Fed’s next policy meeting is scheduled for July 28-29.
CPI Data and Fed Testimony in Focus
Investors are now awaiting Tuesday’s U.S. Consumer Price Index (CPI) report and Federal Reserve Chair Kevin Warsh’s first testimony before Congress for fresh guidance on the interest-rate outlook.
According to Tony Sycamore, market analyst at IG, gold remains highly responsive to both geopolitical developments and U.S. inflation data.
He said bullion found support near the key psychological level of $4,000 last week, while a sustained move above $4,200-$4,220 would strengthen the case for a broader recovery toward the 200-day moving average near $4,491.
However, Sycamore cautioned that stronger-than-expected inflation data could reinforce expectations for another Federal Reserve rate hike before the end of the year, strengthening the U.S. dollar and weighing further on gold prices.
The U.S. Dollar Index rose 0.3% on Monday, adding additional pressure on dollar-denominated bullion.