Gold steadied after the US and Iran ramped up attacks over the weekend, as traders assess the likelihood of the Federal Reserve raising interest rates to contain inflation.
Bullion was trading around $4 010 an ounce, after sliding more than 2% last week. Benchmark Brent crude jumped to above $90 a barrel after the escalation of hostilities in the Middle East, including an attack on a vital oil facility in Kuwait and the targeting of ships attempting to transit through the Strait of Hormuz.
Tehran said the ceasefire between the US and Iran has been effectively abandoned, raising the possibility of deepening disruptions to crucial energy flows through the narrow waterway.
The Iran conflict, now in its fifth month, is again driving up energy and commodity prices from fuel to raw materials used in manufacturing and food production. President Donald Trump has been silent about his Iran strategy as the tension escalates, making the endgame on the either side of the conflict as unclear as ever.
Elevated energy prices have raised some concerns the Fed may eventually tighten monetary policy, even as soft US economic data suggest a rate hike isn’t likely in the near term. Higher borrowing costs are a headwind for non-yielding bullion. Gold has hovered in a narrow range around $4 000 in recent weeks after losing 14% in the second quarter, its worst showing since 2013.
“Gold is showing a relatively muted reaction to the spike in oil prices, which to me reflects some investor apathy around geopolitics” and instead increases focus on the Fed’s rates decision, said Justin Lin, an analyst at Global X ETFs. “Yields are only marginally higher over the weekend despite the significant escalation in the Middle East, which is probably why gold has been quite stable.”
Bank of Cleveland President Beth Hammack in a LinkedIn post on Friday joined a growing chorus of Fed officials is expressing concern over high inflation. Swap traders have priced in at least one hike by the end of the year.
Spot gold was 0.3% lower at $4 006.02 an ounce as of 1:52 p.m. in Singapore. Silver was 1% higher at $56.48 an ounce. Platinum and palladium declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little-changed.
