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Gold prices declined on Monday following the release of US inflation data that exceeded forecasts, fueling expectations of an interest rate hike by the Federal Reserve this week.
A sharp rise in oil prices added to inflationary risks.
Gold traded near $4,340 per ounce following three consecutive weeks of decline; the metal lost 1.8% last week, despite a gain on Friday.
At 01:29 Moscow time, XAU/USD fell 0.3% to $4,335.98 per ounce, while gold futures dropped 0.7% to $4,376.92. XAG/USD fell 0.7% to $64.09 per ounce, and XPT/USD dropped 0.3% to $1,792.63. The US Dollar Index rose 0.1% to 99.19.
High Inflation Fuels Expectations of Fed Rate Hike
Market pressure intensified following the release of August inflation data: the core Consumer Price Index (excluding food and energy) rose 0.3% month-on-month. This stoked expectations that the Fed might raise interest rates for the first time in three years at this week's meeting.
Markets currently price in an approximately 88% probability of a rate hike in September. Rising borrowing costs typically put pressure on gold, as the metal yields no interest, making yield-bearing assets more attractive.
A rate hike could also create political tension surrounding the Fed. On Sunday, President Donald Trump once again called for lower interest rates, continuing his criticism of the central bank's policies. At the same time, the inflation outlook is being complicated by the conflict in the Middle East. Brent crude is approaching $107 per barrel following a nearly 9% rise last week, as the conflict continues to destabilize energy markets.
A meeting scheduled for Monday between Iran and several Persian Gulf nations to agree on a temporary shipping corridor through the Strait of Hormuz was postponed, casting doubt on efforts to increase supplies via this strategically vital waterway.
ANZ maintains a positive long-term outlook despite rate-hike risks
Since rebounding from the $4,000 level in July, gold has traded within a relatively narrow range near $4,400 as investors repeatedly revise their forecasts regarding Federal Reserve policy.
ANZ Bank maintains a constructive view on gold, despite expectations of further monetary policy tightening.
The bank forecasts that escalating tensions in the Middle East and rising energy prices will drive inflation, prompting the Fed to implement three 25-basis-point rate hikes by March 2027.
However, ANZ notes that the inflationary pressure stems from geopolitical turmoil—factors the bank believes will reinforce gold’s status as a safe-haven asset. Consequently, the bank has kept its 12-month price target for gold at $5,400 per ounce.
Investment demand is providing additional market support.
According to ANZ, gold holdings in ETFs and speculative positions have recovered in recent months. The market is also bolstered by steady institutional demand in China and rising investor activity in India.