Gold held a loss as the spreading conflict in the Middle East stoked fears that further energy supply disruptions could keep inflation elevated and raise the prospects for interest-rate hikes. Bullion traded near $4,160 an ounce after ending the previous session 0.5% lower. Brent crude was close to $106 a barrel as Iran-backed Houthi attacks on Saudi Arabia's main airport heaped pressure on Washington to help its ally.
The precious metal has fallen around a fifth since the US-Iran war erupted in late February, triggering global inflation and central bank tightening. Higher borrowing costs are typically bearish for gold, which yields no interest. Traders are looking to US inflation data out on Wednesday for clues on the Federal Reserve's next move, after it tightened policy last month.
Swaps traders are pricing in roughly a 20% chance of an increase at this month's meeting, and expect one such move before the end of the year. Fed Cleveland President Beth Hammack said on Monday that smaller, more frequent adjustments to policy can help keep inflation expectations anchored, but stopped short of backing a rate increase in October. Persistent inflation and heavy government borrowing have kept interest rates and bond yields elevated, taking some of the shine off non-interest-bearing gold.
"With elevated oil keeping inflation risks alive, Wednesday's CPI will be the next critical test of whether the bond market has another reason to push yields higher, maintaining that stubborn ceiling over gold," said Hebe Chen, an analyst at Vantage Global Prime. Spot gold edged down 0.4% to $4,156.27 an ounce, while silver slipped 0.5% to $59.93. The Bloomberg Dollar Spot Index was marginally lower.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing