Gold Stabilizes Amid US Interest Rate Outlook

SadaNews - Gold stabilized after the US and Iran intensified their attacks over the weekend, as traders assessed the likelihood of the Federal Reserve raising interest rates to contain inflation.

The precious metal traded near $4,020 per ounce, after dropping more than 2% last week. Brent crude jumped above $90 per barrel following a surge in hostilities in the Middle East, including an attack on a vital oil facility in Kuwait and the targeting of ships trying to transit the Strait of Hormuz.

Tehran stated that the ceasefire between the US and Iran has effectively been abandoned, raising the possibility of worsening disruptions in the vital energy flows through the narrow waterway.

The ongoing conflict with Iran, now entering its fifth month, is pushing energy and commodity prices up again, from fuel to raw materials used in manufacturing and food production. President Donald Trump has remained silent about his strategy towards Iran as tensions escalate, making the end of the conflict more uncertain than ever.

High energy prices have raised concerns that the Federal Reserve might eventually tighten monetary policy, even as weak US economic data indicates that a rate hike is unlikely in the near term. Rising borrowing costs pose a counterweight to gold, which does not yield any returns.

Gold has remained within a narrow range near $4,000 in recent weeks, after losing 14% in the second quarter, its worst performance since 2013.

Justin Lin, an analyst at Global X ETFs, said: "Gold shows a relatively limited reaction to the surge in oil prices, which to me reflects a degree of waning interest from investors in geopolitical issues," instead increasing the focus on the Fed's decision regarding interest rates.

He added: "Yields only rose marginally over the weekend despite the significant escalation in the Middle East, and that may be why gold has remained relatively stable."

Beth Hammack, president of the Federal Reserve Bank of Cleveland, joined a growing number of Federal Reserve officials expressing concerns about rising inflation in a LinkedIn post on Friday. Traders of swap contracts have priced in at least one rate hike by the end of the year.

Spot gold fell 0.2% to $4,010.81 per ounce at 9:01 AM in Singapore. Silver rose 1.1% to $56.59 per ounce. Platinum and palladium decreased. The Bloomberg dollar spot index, which is a measure of the US currency, remained stable.