Spot gold prices fell sharply on Monday, extending their decline to a seven-week low as higher crude oil prices fuelled inflation concerns. The metal also came under pressure from a stronger US dollar and rising Treasury yields.
Spot gold fell by 3.8% to USD 4,121.6 per ounce. Earlier, it touched USD 4,110.5, its lowest level since August 5. US gold futures also declined 3.9% to USD 4,153.7, according to Reuters data reported by The Times of India.
A sharp rise in crude oil prices has changed expectations around US monetary policy. Higher energy costs can add to inflation pressures and make it harder for the Federal Reserve to ease policy. Oil prices rose after developments surrounding the conflict involving Iran and the Strait of Hormuz.
Jim Wyckoff, a market analyst at American Gold Exchange, said, “Sharply higher crude prices could point to more persistent inflation and tighter Federal Reserve policy. The US dollar also strengthened, making gold more expensive for buyers holding other currencies.”
The dollar index rose to a two-month high on Tuesday and was heading for its strongest monthly performance since June. A stronger dollar typically weighs on dollar-denominated commodities because it raises their effective cost for international buyers.
Higher US Treasury yields added another layer of pressure on gold. Rising yields increase the opportunity cost of holding assets such as gold, which does not generate regular interest income.
US Treasury yields have climbed as markets reassess the outlook for Federal Reserve policy. Traders are increasingly pricing in another rate increase later this year, with expectations also shaped by upcoming US inflation and employment data.
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