Gold is on track to record its biggest weekly loss since early June, as renewed hostilities in the Middle East raise the likelihood that the Federal Reserve (Fed) will need to raise interest rates to curb inflation.
Gold Falls 3.5% This Week
Gold traded around USD3,980 an ounce, down 3.5% so far this week. The United States launched its fifth consecutive attack on Iran on Thursday, following an attack the previous night that hit an oil tanker near the country's main export terminal.
The US dollar and bond yields rose on Thursday, weighing on gold prices. Oil prices maintained their big weekly jump.
Fed Officials Growing Concern About Inflationary Pressures
The conflict, now in its fifth month, has pushed up energy prices and raised inflation risks. More and more Fed officials have voiced concerns about high inflation, with the central bank warning that it may need to raise interest rates soon, a development that poses a challenge for gold, which offers no interest-bearing return.
Gold has remained in a narrow range around USD4,000 an ounce for weeks, after losing 14% in the second quarter of this year, its worst performance since 2013.
Other Precious Metals Also Mixed
Spot gold rose 0.1% to USD3,980.17 an ounce by 7:51 am Malaysia time, after falling 2% in the previous session. Silver edged lower to USD55.50 an ounce, while platinum fell 0.3% and palladium edged up. The Bloomberg Spot Dollar Index was steady after rising 2% in the previous session.
Impact on Ringgit
Expected Fed rate hikes and a stronger dollar typically put additional pressure on regional currencies, including the Ringgit, as investors tend to seek higher returns from dollar-denominated assets over currencies that offer lower interest rates.
As long as tensions in the Strait of Hormuz remain volatile and oil prices remain high, the country's energy import costs are also at risk of rising, adding to the double whammy on the Ringgit through the combination of a stronger dollar and higher energy costs.
Key Takeaways
Gold is set to post its biggest weekly loss since early June, down 3.5% to around USD3,980 an ounce.
The United States launched its fifth consecutive attack on Iran, also hitting an oil tanker near a major Iranian export terminal.
More and more Fed officials have voiced inflation concerns and hinted at a possible interest rate hike.
The US dollar and bond yields rose, weighing on gold prices, which do not offer interest returns.
The expected Fed rate hikes and a stronger dollar could add to the pressure on the Ringgit in the near term.
As long as the conflict in the Middle East continues and Fed officials remain wary of inflation, markets are expected to continue to experience significant volatility until there is further clarity on the direction of the Fed's monetary policy.
