Gold Slides As Higher Oil Prices Fuel Inflation Fears

Since August 7, the price of gold touched its lowest level before rebounding around 4331 dollars per ounce. The conflict between the United States and Iran could not support the safe haven. It caused oil prices to rise, consolidated inflation fears, and increased the likelihood of a US rate hike. The evolution of the dollar and bond yields thus weighs more on the precious metal than the search for security.

Gold chains a fourth session of decline

Gold was trading around 4330.79 dollars per ounce on September 2 after reaching its lowest level in more than three weeks. Indeed, the precious metal was heading for a fourth consecutive session of decline.

US futures contracts for December delivery lost 0.4%, at 4377.90 dollars. Thus, the spot price also remained below the 200-day moving average, around 4528 dollars. It had fallen below this threshold on August 28.

Various indicators of on-chain analysis explain the current pressure :

• Gold touched its lowest level since August 7 ;
• Its spot price hovered around 4331 dollars per ounce ;
• December contracts fell to 4377.90 dollars ;
• The probability of a US rate hike reached about 68%.

At the same time, the dollar reached its highest level in two weeks. This appreciation revalues gold for buyers using other currencies, as the yellow metal is generally priced in dollars.

The decline did not affect all precious metals uniformly. In this regard, silver gained 0.1% at 64.35 dollars per ounce, while platinum fell 0.4% to 1734.06 dollars. Palladium increased by 0.6%, to 1319.12 dollars.

Rising oil turns the crisis into an inflation risk

The United States and Iran engaged in their most significant exchange of fire since July. This new escalation drove oil prices to their highest level in nearly a month.

Geopolitical tensions usually support gold, considered a safe haven. If the conflict directly threatens energy supply, the mechanism can work differently. Rising oil prices can fuel inflation, lead central banks to tighten policies, and increase bond yields.

Nikos Tzabouras, senior analyst at Tradu.com, explains: “Persistent geopolitical uncertainty drives up oil, maintains inflation risks, and pushes the Fed to raise rates.”

This transmission channel is also favorable to the dollar. Investors seek the American currency as higher rate prospects increase its relative yield. These two movements reduce gold’s automatic appeal.

Thus, the yellow metal remains tossed between two forces. Concerns about public debt and currency devaluation maintain its long-term demand. In the short term, the Fed’s scheduled tightening increases its opportunity cost.

The probability of a rate hike approaches 70%

Markets now assign a 68% probability to a rate increase at the September meeting, according to the CME FedWatch. This projection has changed sharply after recent statements from Fed officials.

Michael Barr, Governor of the US central bank, stated that an increase could become necessary if inflation does not slow quickly. Kevin Warsh had adopted a similar stance at Jackson Hole. The Fed Chair recalled that the PCE inflation was about 3.7% over twelve months, well above the 2% target.

Gold holders receive no interest. As bond yields rise, investors therefore favor assets offering constant income. This mechanism explains why geopolitical tensions were insufficient to support gold this week.

Upcoming US employment data would certainly change these expectations. Thus, the ADP report and nonfarm payrolls will help estimate economic strength before the September 15 and 16 meeting.

Strong figures would reinforce the scenario of a rate hike and prolong pressure on gold. A significant labor market slowdown would reduce this probability and provide support to the precious metal.