Gold prices moved slightly lower on Monday as investors assessed rising tensions in the Middle East and the possibility of further interest rate increases from the Federal Reserve.
Concerns about disruption to global oil supplies supported safe-haven demand. However, expectations that US interest rates could remain elevated limited gold’s appeal.
Gold Prices Slip After Weekly Decline
At 09:35 ET, spot gold was down 0.02% at approximately $4,010.42 an ounce. Gold futures were little changed at around $4,019.40 an ounce.
Bullion had already fallen by more than 2% during the previous week.
Middle East Conflict Raises Oil Supply Concerns
Brent crude oil eased after briefly climbing above $90 per barrel earlier in the session.
The latest escalation between the United States and Iran included an attack on a major oil facility in Kuwait. Vessels attempting to pass through the Strait of Hormuz were also reportedly targeted.
These developments increased concerns about possible disruption to global energy supplies.
The Strait of Hormuz is a critical route for international oil shipments. Any prolonged disruption could push energy prices higher and add further pressure to global inflation.
Diplomatic Hopes Limit Safe-Haven Buying
Despite the escalation, investors continued to monitor signs of a possible diplomatic solution.
US Secretary of State Marco Rubio said Washington remained open to negotiations with Iran. He added that the United States would welcome another opportunity for talks.
Iran has also suggested that discussions could take place if they support its national interests.
Iranian Foreign Minister Abbas Araghchi said negotiations may begin after the country achieves certain strategic objectives.
In addition, an Iranian foreign ministry spokesperson said mediators had presented proposals aimed at preventing a further escalation in the conflict.
Federal Reserve Outlook Remains in Focus
Investors are closely watching whether higher energy prices could complicate the Federal Reserve’s efforts to control inflation.
A sustained rise in oil prices could keep inflation above the central bank’s target. This may force policymakers to maintain restrictive monetary policy for longer.
Higher interest rates usually reduce the appeal of gold because the metal does not generate interest or income.
A stronger US dollar can also pressure gold prices by making bullion more expensive for buyers using other currencies.
Markets Assess Possibility of Fed Rate Hike
ANZ analysts said last week’s escalation in the Middle East briefly raised the market-implied probability of a Federal Reserve rate increase at the July 29 meeting to around 40%.
However, the bank still expects the Federal Reserve to leave interest rates unchanged this year.
ANZ believes policymakers may look beyond a temporary increase in energy prices unless it begins to create broader inflation across goods, services and wages.
For now, gold traders remain caught between geopolitical safe-haven demand and concerns that interest rates could stay higher for longer.
