Gold prices fell to a more than seven-week low on Monday as rising oil prices, a stronger US dollar and higher Treasury yields heightened inflation concerns linked to the war between the United States and Iran.
Spot gold dropped 3.3 per cent to $4,146.51 an ounce, its lowest level since August 5. US gold futures also declined 3.3 per cent, to $4,178.40.
Oil prices rose by about 3 per cent after US President Donald Trump rejected an Iranian offer to resolve the conflict and reopen the Strait of Hormuz. The dollar remained close to a two-month high, while Treasury yields added further pressure on the precious metal.
Gold is traditionally viewed as a hedge against inflation, but higher interest rates can reduce its appeal because investors may favour assets that generate a yield.
The Federal Reserve raised its benchmark interest rate by a quarter of a percentage point earlier this month and indicated that at least one further increase was likely in the coming months. Several policymakers have warned that inflation risks remain elevated, with Cleveland Fed president Beth Hammack among those to reiterate that view.
“Higher Treasury yields and the US dollar are creating a perfect storm to push the metals prices sharply lower,” said Jim Wyckoff, a market analyst at American Gold Exchange.
Sherif Othman, chief executive of Maryland-based Poise Investment Advisors, said ordinary people might not see a notable direct effect, but investors who had moved into gold would be hit, particularly amid high inflation.
“Gold does not yield interest, so when Treasury yields go up, investors turn away from gold, impacting its value,” he said.
Other precious metals also recorded sharp losses. Spot silver fell 4.7 per cent to $61.27 an ounce, while platinum declined 2.9 per cent to $1,726.30 and palladium dropped 4.4 per cent to $1,211.45.
