Gold Price Slumps as Middle East Tensions Rise and Fed Hikes Loom

The gold price (XAU/USD) edged lower to near $4,365 during the early Asian session on Monday due to escalating tensions in the Middle East and hawkish comments from Federal Reserve officials.

According to Reuters, governments across the Middle East are bracing for an escalation of violence after Iran claimed it had received intelligence that Washington was preparing for a renewed bombing campaign against the Islamic Republic. Rising tension in the region could raise oil-driven inflation concerns, weighing on the gold price.

The Federal Reserve raised interest rates by a quarter of a percentage point to the 3.75%-4.0% range last week and flagged more hikes in the coming months. Traders now see a 56.5% odds of another US rate hike when the central bankers meet next in October, according to the CME FedWatch tool.

Kansas City Fed President Jeffrey Schmid said on Friday that he supported the rate hike, stating 'recent data suggest inflation trending above 3%.' Minneapolis Fed President Neel Kashkari stated on Sunday that US inflation remains elevated across multiple economic sectors and is not solely driven by rising energy and oil prices.