Gold Falls, Oil Triggers Inflation Alarm
Gold prices weakened nearly 2% in trading on Thursday (July 23rd) after hitting a two-week high the previous day. Rising oil prices have rekindled inflation concerns and strengthened the likelihood of the Federal Reserve maintaining its tight monetary policy, despite increasing geopolitical risks.
At 10:14 a.m. New York time, spot gold fell 1.9% to US$4,049.48 per troy ounce. Meanwhile, gold futures fell 2.4% to US$4,051.72 per troy ounce. Previously, the precious metal had strengthened by about 3% in the last two trading sessions.
Pressure on gold arose as the conflict between the United States and Iran escalated. The two countries have shown no signs of returning to the negotiating table, while the Iran-backed Houthi group in Yemen claimed attacks on tankers transiting the Red Sea.
The attacks raised concerns that disruptions to oil shipments from the Gulf region could extend beyond the Strait of Hormuz. The market is beginning to assess risks to other shipping lanes crucial to global energy distribution.
Oil prices also continued to strengthen. Brent broke through US$100 per barrel for the first time since late May after the Houthis claimed attacks on two Saudi Arabian oil tankers. This situation has heightened concerns that global oil supplies could experience wider disruptions.
The surge in oil prices has the potential to increase energy, transportation, and production costs, potentially reinforcing inflationary pressures. This situation has fueled speculation that the Fed may need to maintain high interest rates for longer, even opening the door to a rate hike this year.
The prospect of higher interest rates puts pressure on gold because the precious metal offers no yield. When bond yields rise, the opportunity cost of holding gold also rises, leading investors to shift to interest-bearing assets.
Despite the correction, gold has managed to hold above the psychological level of US$4,000 per troy ounce. The market is now watching to see whether prices can regain momentum to test the resistance area around US$4,200, after previously experiencing a sharp decline from the January record high. (arl)
Source: Newsmaker.id
