Investing.com – Gold prices turned lower on Monday, as escalating Middle East tensions fueled worries that energy-driven inflation pressures could lead the Federal Reserve to hike interest rates.
At 08:30 ET (12:30 GMT), had dropped 0.1% to $4,012.49 an ounce, while had ticked down 0.1% to $4,016.40 an ounce. Bullion slid more than 2% last week.
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eased, after earlier climbing above $90 a barrel. Intensifying strikes between the U.S. and Iran included an attack on a key oil facility in Kuwait and the targeting of vessels attempting to transit the Strait of Hormuz, driving fresh concerns over global energy supplies.
Yet hopes remained for a potential diplomatic resolution to the conflict. U.S. Secretary of State Macro Rubio said on Sunday that the U.S. was still open to holding talks with Iran, noting that Washington would be “happy” should the opportunity to pursue more talks arise.
Meanwhile, Iran has suggested that negotiations with the U.S. could be pursued based on national interests, with Iranian Foreign Minister Abbas Araghchi saying that discussions could begin once “strategic gains” have been achieved. A spokesperson for the Iranian foreign ministry also said that mediators have issued proposals attempting to prevent a further intensification in fighting.
Fed outlook remains in focus
Investors have been focused on whether rising energy costs could complicate the Fed’s inflation fight.
Higher oil prices have renewed concerns that inflation could remain above the central bank’s target, potentially forcing policymakers to keep monetary policy restrictive for longer. Elevated interest rates can dent the appeal of holding non-yielding assets such as gold, while a stronger U.S. dollar can make bullion more expensive for overseas buyers.
ANZ analysts said last week’s violence in the Middle East briefly pushed market expectations for a Fed rate hike at its July 29 meeting up to as high as 40%.
But the bank continues to expect policymakers to leave rates unchanged this year, arguing the Fed is likely to look through higher energy prices unless they generate broader second- and third-order inflation effects.
(Roushni Nair contributed reporting)