Gold Plunges Over 2% as Middle East Tensions Reignite Inflation and Rate Hike Fears

Gold plunged over 2% on Thursday (23rd), retreating from the previous day's two-week high, as Middle East conflict pushed up energy prices, reigniting inflation concerns and strengthening rate hike expectations, which weighed on the non-yielding metal.

Spot gold fell 2.1% to $4,043.14 per ounce, after hitting its highest level since July 7 earlier on Wednesday.

August-delivery gold futures closed 2.5% lower at $4,050.20 per ounce.

The dollar index rose 0.3%, making dollar-denominated gold more expensive for overseas investors. Meanwhile, the 10-year U.S. Treasury yield climbed to its highest level in over a year, diminishing the appeal of non-yielding assets like gold.

Jim Wyckoff, analyst at American Gold Exchange, said: "Rising oil prices push up bond yields because central banks won't be able to lower interest rates amid inflation troubles. In contrast, gold and silver yield no interest, so rising yields are essentially the enemy of gold and silver bulls."

Brent crude surged past $100 per barrel on Wednesday, the first time since late May, after Yemen's Houthi movement claimed attacks on two Saudi Arabian oil tankers, raising concerns that global oil supply disruptions could extend beyond the Strait of Hormuz.

Higher energy prices typically pressure gold, as they may force central banks to keep interest rates elevated for longer, hurting non-yielding gold.

Investors are awaiting the Federal Open Market Committee (FOMC) meeting next week, hoping to gain further clues on monetary policy stance.

The CME's FedWatch tool shows traders are pricing in an approximately 83% chance of a Fed rate hike in September, up from 68% on Wednesday.

Wyckoff said: "The market expects rates to be held steady next week, perhaps with slightly hawkish wording. Either way, the market will react if the Fed's stance is unexpectedly dovish or hawkish."

Other precious metals trading

Spot silver fell 3.8% to $57.44 per ounce.

Spot platinum declined 3.3% to $1,590.58 per ounce.

Spot palladium dropped 2.7% to $1,256.50 per ounce.