Oil Surge Fuels Inflation Fears, Rate Hike Odds Skyrocket
Gold prices plummeted on Tuesday as tensions in the Middle East drove oil to almost $100 per barrel, fueling inflation concerns and raising expectations of a Federal Reserve rate hike. Spot gold fell 0.4% to $4,385.09 per ounce, while December gold futures settled 1% lower at $4,430.10 per ounce.
The surge in oil prices is causing market participants to reassess their bets on inflation and interest rates. According to the CME FedWatch tool, traders now assign a 60% probability to a rate hike at the central bank's policy meeting, up from about 50% before the data release.
Peter Grant, vice president and senior metals strategist at Zaner Metals, noted that the market continues to digest a stronger-than-expected U.S. jobs report while awaiting upcoming CPI and PPI data. Rising oil prices are also exacerbating inflation concerns and supporting expectations for a September rate hike.