Gold prices edged lower as traders weighed the impact of escalating Middle East tensions and the Federal Reserve's rate path. Bullion was trading at around $4,120 an ounce, following a 0.4% rise in the previous session that snapped three days of declines. The decline came amid rising oil prices, fueled by concerns of an escalation after a US Department of State order for non-emergency personnel to leave Saudi Arabia and a drone strike on a Saudi Aramco field that left two people dead.
Treasury yields rose across maturities, with the two-year note reaching its highest level in a week. Higher borrowing costs pose a challenge for gold, which does not pay interest. Since the US-Iran conflict began in late February, gold has fallen by about a fifth, driven by higher energy prices and inflation.
Traders remain uncertain about the Fed's next move, with few fresh clues since Chairman Kevin Warsh's remarks on Friday. While signs of a softening US economy have emerged, including a drop in September housing starts and record-low pending home sales, the probability of a quarter-point hike next week is less than one-in-six. However, inflation remains well above the Fed's 2% target, and elevated energy costs could prompt further monetary policy adjustments.
Spot gold fell 0.4% to $4,123.39 an ounce at 7:36 a.m. in Singapore, while silver dropped 0.7% to $57.54. Platinum and palladium also declined. The Bloomberg Dollar Spot Index showed little change after a 0.1% rise in the previous session.