Gold Prices Drop Over 1% Amid Rising Oil Costs and Interest Rate Hike Expectations

Gold prices plummeted over 1% on Monday as rising oil costs fueled inflation concerns and strengthened expectations of additional interest rate hikes by the Federal Reserve. Spot gold dropped to $4,223.95 per ounce at 0117 GMT, with US gold futures falling 1.5% to $4,257.90.

According to Tim Waterer, chief market analyst at KCM Trade, 'The high bond yields and high oil price tandem continues to act as a thorn in gold's side.' He pointed out that oil prices rebounded more than 1% after Iran insisted that only diplomacy can solve its conflict with the US and Israel.

The Fed raised rates earlier this month, increasing its target rate range by a quarter percentage point to between 3.75% and 4%. Traders are pricing in a 66% chance of a US rate hike in October, according to CME's FedWatch Tool. Higher energy prices can fuel inflation by raising costs across the economy, which could weigh further on gold.

Investors will be watching U.S. labour market and inflation data this week, including job openings, the ADP employment report, the Personal Consumption Expenditures (PCE) price index, and nonfarm payrolls. A stronger-than-expected inflation or employment number could keep upward pressure on bond yields and weigh further on gold.