Gold Prices Plummet as Oil Soars and Inflation Concerns Grow

Gold prices plummeted by over 1% on Monday as oil prices surged and concerns about inflation increased, strengthening expectations that the US Federal Reserve could raise interest rates again.

By 01:17 GMT, spot gold was trading at $4,223.95 per ounce, down 1.5%, while US gold futures fell to $4,257.90, also by 1.5%.

Tim Waterer, chief market analyst at KCM Trade, pointed out that rising bond yields and higher oil prices were putting pressure on gold, as well as the fact that oil prices were keeping inflation at the forefront of investors' concerns.

Oil prices rose over 1% amid mixed signals over oil flows, with Iran insisting that diplomacy is the way to resolve its dispute with the US and Israel. The Federal Reserve raised interest rates by 25 basis points earlier this month, bringing the target range to 3.75%-4%, which has traders pricing in a 66% probability of another US rate hike in October.

Higher energy prices increase costs across various sectors of the economy, potentially fueling inflation. Although gold is widely viewed as a hedge against inflation, higher interest rates increase the cost of holding the non-yielding asset.