Gold Slumps as Middle East Conflict Fuels Inflation Worries
The price of gold has dropped to near $4,050 as tensions in the Middle East escalate and oil prices rise. The conflict between Yemen's Houthi militant group and Saudi Arabia, coupled with US strikes on Iran, has fueled concerns about a wider war in the region.
US President Donald Trump warned the Houthis that if they attack again, the US would inflict 'major military punishment' on both them and Iran. He also stated that he's considering a massive attack on Iran, saying it would be 'bigger than ever before.'
The inflation scare driven by rising oil prices has boosted bets that the US Federal Reserve will resume raising interest rates as soon as next week. Money markets are now pricing in nearly a 35.8% chance of a rate hike from the Fed this month, and an 82.1% probability of at least a quarter-point hike in September.
According to TD Securities, the broader macro backdrop remains unsupportive for a sustained build-up in bullish positioning, with analysts arguing that there are no fundamental reasons to think that the US rate and FX environment will be conducive to increasing long gold exposure any time soon.