Gold prices edged lower toward $4,350 an ounce on Monday as a firmer U.S. dollar and expectations of additional interest-rate increases offset support from persistent geopolitical uncertainty in the Middle East.
Spot gold traded around $4,365 an ounce in early Asian trading, giving back part of Friday’s advance. New York gold futures were also lower in European trading, as investors reassessed the outlook for monetary policy following last week’s Federal Reserve rate increase.
The dollar remained firm after gaining more than 1% last week. A stronger U.S. currency can pressure dollar-denominated gold by making the metal more expensive for buyers using other currencies.
Higher Interest Rates Pressure Gold
Expectations for further monetary tightening remain one of the main constraints on bullion.
The Federal Reserve raised its benchmark rate by 25 basis points last week to 3.75%-4.00% and indicated that additional tightening could be necessary as inflation remains elevated. As of Monday, traders were assigning roughly a 55% probability of another increase at the Fed’s October meeting, according to CME FedWatch data cited by Reuters.
That is a notable change from the supplied 88% December figure: current market pricing has shifted toward the possibility of an earlier move in October.
Higher interest rates typically create a headwind for gold because bullion does not pay interest, increasing the relative appeal of yield-bearing assets such as government bonds.
Central Banks Shift Toward Tighter Policy
The pressure on gold comes amid a broader shift toward tighter monetary policy among major central banks.
The Bank of Japan raised its policy rate to 1.25% on Friday, its highest level in 31 years. The European Central Bank also raised rates by 25 basis points earlier this month, while the Fed’s September increase marked the first U.S. hike in more than three years.
The moves reflect renewed concern that higher energy costs and persistent underlying inflation could keep price pressures above central-bank targets for longer.
Oil Retreat Offers Some Inflation Relief
Oil prices moved lower again on Monday, providing some relief from the energy-driven inflation concerns that had pushed global bond yields higher.
Markets are also watching diplomatic activity surrounding this week’s United Nations General Assembly as governments explore avenues for reducing tensions around the Iran conflict. Reuters reported Monday that hopes for diplomatic progress and signs of improving Middle Eastern energy shipments helped push crude prices lower.
For gold, those developments create competing forces. Lower oil prices can reduce inflation concerns and safe-haven demand, while geopolitical uncertainty can support demand for bullion. At the same time, a stronger dollar and expectations of further rate increases continue to weigh on the non-yielding metal.
