Gold and Silver Prices Decline as Rate Hike Bets Grow Due to the Middle East

SadaNews - Gold and silver prices fell after the United States and Iran exchanged new strikes over the weekend, driving energy prices up and raising the specter of potential interest rate hikes to combat inflation.

Spot gold prices fell by as much as 1.6% to approach $4,061 per ounce, having lost 1.4% of its value last week.

Confusion prevailed regarding the status of energy shipments crossing the Strait of Hormuz, as the United States denied a previous statement from Iran claiming that the waterway would be closed "until further notice." The U.S. Central Command stated that U.S. forces carried out a fourth round of strikes within a week in response to an attack by Tehran on a Cypriot-flagged container ship.

For gold traders, the escalation of fighting in the Middle East raises concerns that the Federal Reserve may need to keep interest rates high for a longer period to combat stubborn inflation.

The minutes from the Federal Reserve's June meeting, released last week, showed that a few policymakers saw a case for raising interest rates, although they ultimately supported the decision to keep them unchanged.

Overall, the minutes reflected increasing concern among U.S. central bank officials about inflation, while worries regarding the labor market have eased somewhat. Generally, high borrowing costs act as a headwind to gold, which does not earn interest.

Hebi Chen, an analyst at Vantage Markets in Melbourne, stated, "Renewed geopolitical tensions have sent another shock wave through an already fragile gold market." She added, "Unless fighting around Hormuz calms significantly and opens a new chapter for precious metals, high oil prices, solid yields, and a stronger dollar may keep gold under pressure this week."

Decline in Bullish Bets Before Warsh's Testimony

Gold has dropped by over a fifth since the war in Iran began in late February, as a wave of profit-taking ended a three-year rally, briefly pushing the metal below $4,000 for the first time since November. However, there is currently little evidence that investors are building large short positions in anticipation of further declines.

The latest pressure on gold comes as Kevin Warsh is set to make his first appearance before Congress as the Fed Chair on Tuesday. His testimony before the House Financial Services Committee in Washington will come ahead of consumer price data for June from the Bureau of Labor Statistics.

Spot gold fell 1.5% to $4,058.18 per ounce at 11:34 AM Singapore time. Silver dropped 2.9% to $58.11 per ounce. Platinum and palladium also decreased. The Bloomberg Spot Dollar Index, a measure of the U.S. currency, rose by 0.2%.