Gold prices fell on Monday following higher-than-expected US inflation data, which reinforced expectations that the Federal Reserve will raise interest rates later this week, while higher oil prices added further inflationary risks.
Gold was trading near $4,340.00 an ounce after falling for the third consecutive week, with the metal losing 1.8% last week despite closing higher in Friday's session.
At 00:29 (Saudi Arabia time), XAU/USD fell 0.3% to $4,335.98 per ounce, while gold futures declined 0.7% to $4,376.92. XAG/USD dropped 0.7% to $64.09 per ounce, and XPT/USD slipped 0.3% to $1,792.63. The US dollar index edged up slightly by 0.1% to 99.19.
Higher inflation reinforces expectations of an interest rate hike.
The latest pressure on gold came after August inflation data showed the core consumer price index, which excludes food and energy costs, rose 0.3% month-on-month. This increase added to expectations that the Federal Reserve may raise interest rates for the first time in three years at its meeting this week.
Markets are currently pricing in an approximately 88% probability of an interest rate hike in September. Higher borrowing costs typically weigh on gold, as the metal does not generate any yield, making assets with returns more attractive.
Raising interest rates could also lead to political tensions with the Federal Reserve. President Donald Trump reiterated his calls for lower interest rates on Sunday, continuing his recent criticism of the central bank's stance on monetary policy.
Meanwhile, the conflict in the Middle East is further complicating the inflationary landscape. Brent crude rose to nearly $107.00 a barrel after jumping about 9% last week, as the conflict continues to disrupt energy markets.
A meeting scheduled for Monday between Iran and several Gulf states to establish a temporary shipping corridor through the Strait of Hormuz was also postponed, leaving efforts to increase shipments through this vital waterway in limbo.
ANZ sees long-term support despite the risks of rising interest rates.
Gold has traded in a relatively narrow range around the $4,400.00 level since bouncing off a low near $4,000.00 in July, as investors repeatedly reassess the Federal Reserve's monetary policy outlook.
ANZ Bank announced that it remains optimistic about gold despite expectations of further monetary tightening.
The bank expects escalating tensions in the Middle East and rising energy prices to push inflation higher, and forecasts three interest rate hikes of 25 basis points each by March 2027.
However, ANZ Bank noted that these inflationary pressures are driven by geopolitical instability, which it believes should maintain gold's appeal as a safe haven. Therefore, the bank kept its 12-month gold price target at $5,400.00 per ounce.
Investment demand also provides an additional source of support.
ANZ Bank noted that gold ETF holdings and speculative positions have recovered in recent months, with the market also supported by strong institutional demand in China and increasing investor participation in India.
