Gold prices have continued to face pressure since the week opened after the latest statement by Fed Governor Christopher Waller, which hinted that interest rates may be raised if US inflation data this week shows a higher-than-expected reading.
At 9 am, gold prices were trading at $3,994, down 0.21% since it opened in early trading on Tuesday in the Asian session.
According to Waller, core inflation that is still high could force the Fed to consider raising interest rates in the near term.
Although he is still confident that inflation will eventually return to the 2% target, the market saw the statement as a signal that the Fed is likely to maintain a more aggressive stance.
At the same time, the conflict between the United States and Iran continues to escalate despite the two countries previously signing a memorandum of understanding to reduce tensions.
Iran's attack on ships in the Strait of Hormuz has triggered US retaliation, with more than 100 military targets reportedly attacked.
Tensions have increased as Iran announced the closure of the Strait of Hormuz to oil tankers. The development has raised concerns about global energy supply disruptions, sending WTI crude prices soaring nearly 6% to around US$75.70 per barrel.
The rise in oil prices has raised the risk of a renewed spike in inflation. This has reinforced expectations that the Fed may keep interest rates high or raise them again to control price pressures.
So far, the market is expecting around 33 basis points of interest rate hikes by the end of the year.
Investors are now focused on US Consumer Price Index (CPI) data and Fed Chairman Kevin Warsh's testimony to Congress this week. Both developments are expected to be the main drivers of gold price movements in the near term.
While geopolitical conflicts usually support gold prices, this time the market is more focused on the impact of the war on inflation and Fed policy. As long as oil prices remain high and interest rate expectations continue to rise, gold prices have the potential to remain under pressure.
