FX.co ★ Gold Falls as Higher Oil Prices Lift Rate-Hike Bets

Gold slid to $4,150 an ounce on Monday, its lowest level since August 5, as a sharp rally in oil prices stoked inflation fears and reinforced expectations that interest rates will stay higher for longer. The non-yielding metal also came under pressure from a stronger US dollar and US Treasury yields hovering near 19-year highs.

Brent crude climbed to $107 a barrel after President Donald Trump rejected an Iranian peace proposal intended to resolve the conflict and reopen the Strait of Hormuz, a key energy chokepoint. The move prompted markets to increase bets on additional Federal Reserve rate hikes, with CME’s FedWatch Tool now pricing in more than a 70% probability of a second rate hike as early as October.

Cleveland Fed President Beth Hammack warned on Friday that persistently elevated inflation risks conditioning the public to view higher prices as normal, stressing that the central bank cannot allow that to happen.

Investors are now turning their attention to a slate of US economic releases this week, including Wednesday’s PCE inflation report and Friday’s nonfarm payrolls data, for further clues on the Fed’s policy path.