Gold Prices Plummet Amid Iran Tensions and Rate Hike Fears
Gold prices fell to a three-week low on Wednesday as rising oil prices and expectations of a Federal Reserve rate hike weighed on the metal. The latest decline comes after a fresh round of US strikes against targets in Iran, which has escalated tensions and pushed oil prices higher.
Oil prices edged lower to $94 a barrel but remained near recent highs as traders assessed the risk that a prolonged conflict could disrupt energy flows through the Strait of Hormuz. Higher oil prices matter for gold because energy costs can feed directly into inflation, making it more likely that the Federal Reserve will increase interest rates.
The market is now pricing in close to a 70% probability of a Fed rate hike at the September 15-16 meeting, following Federal Reserve Chair Kevin Warsh's hawkish message last week and fresh warnings from Fed officials that inflation could remain entrenched. Fed Governor Michael Barr said on Tuesday that policymakers should be prepared to raise interest rates if inflation does not ease, warning that price pressures could become embedded after remaining above the Fed's target for more than five years.
The dollar has strengthened alongside the selloff in global bond markets, where long-dated US Treasury yields have climbed back to levels seen before the Treasury's surprise intervention last month. The broader move has also pushed government bond yields higher across major markets, with global yields reaching their highest levels since 2008.