Gold falls for second day as Middle East tensions dim hopes for Fed rate cuts

Dubai: Gold prices extended their decline for a second consecutive session on Monday as escalating tensions in the Middle East heightened inflation concerns and reinforced expectations that the US Federal Reserve may keep interest rates higher for longer.

Spot gold fell 1.2% to $4,072.49 per ounce, while US gold futures for August delivery slipped 0.8% to $4,081.30.

The decline came as US and Iranian forces exchanged missile and drone attacks, with Tehran targeting US facilities in Gulf states and signalling the possibility of closing the Strait of Hormuz, a vital route for global energy supplies.

Oil prices rose nearly 3% following the developments, adding to concerns that higher energy costs could fuel inflation and influence monetary policy expectations.

Ole Hansen, an analyst at Saxo Bank, said renewed hostilities in the Gulf have revived concerns about inflation and the possibility of further Federal Reserve tightening, creating additional pressure on gold through higher bond yields and a stronger US dollar.

He added that heightened tensions in the Middle East, combined with rising oil prices and lower summer trading volumes, could push gold outside its recent trading range of $3,900 to $4,200 per ounce.

According to the CME FedWatch Tool, traders are now pricing in a roughly 71% probability of a US interest rate increase in September, up from about 63% a week earlier.

Market attention is also focused on a series of US economic releases this week, including the June Consumer Price Index (CPI), Producer Price Index (PPI), retail sales data and weekly jobless claims figures.

Investors are also awaiting Federal Reserve Chair Kevin Warsh's first congressional testimony, scheduled for Tuesday and Wednesday, for further signals on inflation and interest-rate policy.

Among other precious metals, silver fell 1.6% to $58.88 per ounce, platinum declined 0.3% to $1,622.72, and palladium dropped 0.7% to $1,267.46.