Gold declined as a ramp-up in Iranian attacks on tankers crossing the Strait of Hormuz sent oil and gas prices higher, reviving concerns over war-driven inflation.
Bullion dropped more than 1% to trade below $4,120 an ounce, erasing the previous session’s gains. Tehran has increased · the pace of attacks in recent days, while oil executives have warned the world is running out of stopgaps to manage the impact of a US-Iran war that’s now into its eighth month.
Gold has slumped over the course of the conflict as rising energy costs have stoked inflation and led major central banks to start tightening monetary policy, a headwind for the non-yielding precious metal. While oil flows from the Middle East have risen near pre-conflict volumes , shipping costs remain close to unprecedented levels due to elevated risks.
At the same time, benchmark US Treasury yields were again rising and trading near their highest since 2002, with the market facing a key test on Wednesday at a $39 billion auction of the 10-year notes. Traders will also parse minutes of the Federal Reserve’s September meeting for clues on the likely trajectory for interest rates.
Federal Reserve officials had been talking down the likelihood of imminent tightening, and traders are now pricing the chance of an increase at its October meeting at about 22 %, down from about 70% at the start of last week.
A dip in yields on Tuesday had lent some support to gold but the precious metal “is still short of a clear catalyst for a sustained turnaround,” said Christopher Wong, global market strategist at Oversea-Chinese Banking Corp.
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Bullion is down more than a fifth since the US-Iran conflict began in late February. Still, central bankers gathering in Italy this week stressed its increasingly strategic role in diversifying reserves as geopolitical uncertainties boost its appeal as a safe-haven asset.
Spot gold fell 1.2% to $ 4,113.83 an ounce at 10:43 a.m. in London. Silver was 2% lower at $ 60.08 . Platinum and palladium also declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, was up 0.3% .