Gold Slumps as Fed Hawkish Stance Sends Prices Down

Gold prices slumped to a near two-week low on Monday after US Federal Reserve Chair Kevin Warsh hinted at potential interest rate hikes to curb inflation. Spot gold fell by 0.8% to $4,417.04 per ounce, its weakest level since August 19.

The decline was triggered by Warsh's hawkish stance during the Jackson Hole economic symposium, where he stated that policymakers may need to raise rates if they don't see confidence that inflation is heading down to 2%.

Markets are currently pricing in a 60% chance of a Fed rate hike in September, according to the CME FedWatch tool. The increase in interest rates typically makes gold less appealing as an investment, since it doesn't generate interest income.

The Middle East tensions have also contributed to inflation fears, with oil prices rising more than 2% following US military action in Iran.

Tim Waterer, chief market analyst at KCM Trade, noted that 'gold is still licking its wounds after the hawkish tone struck by Warsh' and that the upcoming nonfarm payrolls data could either extend gold's weakness or spark a short-covering bounce.