Gold prices fell on Wednesday as tensions in the Middle East continue to raise inflation concerns and boost expectations for higher U.S. interest rates.
Spot gold was down 0.6% at $4,030.50 an ounce by 1130 GMT. Prices rose more than 2% on Tuesday to hit a session high of $4,100.19 an ounce after weak U.S. inflation data.
US gold futures for August delivery fell 0.8% to $4,036.20.
After Iran closed the Strait of Hormuz and the United States reimposed a naval blockade of Iranian ports, Iran’s Islamic Revolutionary Guard Corps threatened to close all export corridors that could benefit the United States. Crude oil edged higher after closing at a one-month high on Tuesday.
“Higher U.S. oil, gasoline and diesel prices will result in higher inflation in August’s next printing. As a result, the tone of some Fed officials could remain on the hawkish side, which is not positive for gold,” UBS analyst Giovanni Staunovo said.
“Gold remains the main driver of US inflation, so oil and US gasoline prices will continue to have an impact in the near term,” Staunovo added.
Rising interest rates tend to weigh on gold as it increases the opportunity cost of holding non-yielding assets.
Federal Reserve Chairman Kevin Warsh told lawmakers on Tuesday that the central bank “will not tolerate persistently high inflation,” suggesting that not all CPI data was inflated. Meanwhile, traders are pricing in about a 61% chance of a rate hike in September, according to the CME FedWatch tool.
Investors are currently awaiting US producer price index data, due at 1230 GMT on Wednesday, for insight into inflation levels and the outlook for monetary policy.
Among other metals, spot silver fell 1.1% to $57.96 an ounce and platinum fell 0.84% to $1,617.97.
Palladium fell 1.2% to $1,289.45 after gaining 5% in the previous session.
(Reporting by Sukanya Mitra in Bengaluru; Editing by Diti Pujara)
