Precious Metals Afternoon: Yemeni Rebels Impose Maritime Blockade on Saudi Arabia, Gold Dips

Gold prices fell on Monday (20th) as rising tensions between the U.S. and Iran pushed oil prices higher, casting uncertainty over U.S. interest rate expectations.

Spot gold declined 0.2% to $4,007.91 per ounce.

August-delivery gold futures dropped 0.1% to close at $4,015.90 per ounce.

The yield on the 10-year U.S. Treasury note rose 0.4%, weighing on non-yielding gold. The dollar also climbed 0.2%, making dollar-priced gold less attractive to overseas buyers.

Following renewed U.S. airstrikes on multiple Iranian cities, Iran's Islamic Revolutionary Guard Corps (IRGC) announced retaliatory attacks on U.S. military targets across the Middle East. Meanwhile, Iran-aligned Yemeni rebel group the Houthis declared a maritime blockade on Saudi Arabia, introducing new risks to oil exports through the Red Sea.

Brent crude, already at a over one-month high, rose further on the news, fueling inflation concerns and boosting expectations for higher interest rates. Although gold is traditionally seen as an inflation hedge, its appeal typically diminishes in a high-interest-rate environment due to its lack of yield.

David Meger, head of metals trading at High Ridge Futures, said: "Soaring energy prices remain the focal point of escalating Middle East tensions, and even weaker-than-expected inflation data last week may not be enough to deter the Federal Reserve (Fed) from raising rates later this year."

Cleveland Federal Reserve President Beth Hammack joined a growing number of officials suggesting rate hikes may be necessary to tame persistently high inflation, signaling intense debate at the Fed's July policy meeting and raising the possibility of dissent during Kevin Warsh's second meeting as Fed Chair.

The CME's FedWatch tool shows traders pricing in an approximately 83% chance of a Fed rate hike in December, up from 73% last week.

"We expect the Fed to respond later this year through balance sheet adjustments rather than rate hikes," said Meger. "We believe this move could provide some support to the gold market and pressure the dollar within the next one to two months."

Other precious metals:

- Spot silver rose 1.2% to $56.55 per ounce. - Spot platinum gained 0.1% to $1,592.86 per ounce. - Spot palladium increased 0.9% to $1,258.83 per ounce.