FX.co ★ Gold Drops on Rate Hike Fears

Gold slipped to $4,040 an ounce on Monday as uncertainty surrounding US–Iran peace talks heightened inflation worries and strengthened expectations of further interest rate hikes by the Federal Reserve. The metal is heading for a fourth consecutive monthly decline, down more than 10% so far this month.

The United States and Iran have agreed to halt hostilities in the Gulf and resume negotiations over security in the Strait of Hormuz. US President Donald Trump said Tehran requested talks with an American delegation in Qatar on June 30, following Iran’s missile and drone attacks on US military facilities in Kuwait and Bahrain. Trump had previously warned Iran of severe consequences if it failed to comply with a peace agreement.

As a traditional hedge against inflation, gold tends to lose attractiveness in a high interest rate environment because it does not generate income. Markets are now pricing in three Fed rate hikes this year, with about a 60% probability of another increase in September. Investors are also awaiting key US employment data due later this week.