Gold slips as firm inflation bolsters Fed hike bets

Gold prices fell on Monday after hotter-than-expected U.S. inflation data increased expectations that the Federal Reserve will raise interest rates later this week, while a stronger dollar and surging oil prices added to pressure on bullion. 

By 10:00 ET (14:00 GMT), spot gold had slipped by 1.8% to $4,271.44 an ounce, while gold futures had dropped by 2.2% to $4,311.15 an ounce.

The latest pressure on gold followed August inflation data, which showed firmer-than-anticipated underlying price gains. The increase added to expectations that the Fed could deliver its first rate hike in three years at this week’s meeting.

Markets are now pricing roughly an 88% probability of a September rate hike. Higher borrowing costs typically weigh on gold because the metal generates no interest, making yield producing assets more attractive.

A rate increase could also create political tension for the Fed. President Donald Trump reiterated his calls for lower interest rates on Sunday, continuing his recent criticism of the central bank’s policy stance.

At the same time, the inflation outlook is being complicated by the Middle East conflict. Benchmark Brent crude climbed above $108 a barrel after rising almost 9% last week, as the conflict continued to disrupt energy markets.

A meeting planned for Monday between Iran and several Gulf nations to establish a temporary shipping lane through the Strait of Hormuz was postponed, leaving efforts to increase shipments through the critical waterway uncertain.

Gold has traded in a relatively narrow range around $4,400 since rebounding from a floor near $4,000 in July, as investors repeatedly reassessed the outlook for Fed policy.

ANZ said it expects escalating Middle East tensions and higher energy prices to drive inflation higher and forecasts three 25-basis point Fed rate hikes by March 2027. However, ANZ said those inflation pressures are being driven by geopolitical disruptions, which it believes should preserve gold’s safe haven appeal.