Gold price slumps as US-Iran strikes, Fed’s Waller fuel rate hike bets

Gold dropped the most in more than two weeks as renewed US-Iran hostilities in the Middle East and remarks from a monetary policymaker fueled expectations that the Federal Reserve may raise interest rates to contain inflation.

Bullion slid as much as 3.2% to trade below $4,000 an ounce, the largest intraday drop since June 24 as Fed Governor Christopher Waller said policymakers may need to raise rates in the near term. Swap traders are now pricing in a 43% chance of a rate hike at the Fed’s July meeting, up from nearly 40% before Waller’s remarks. Higher borrowing costs are a headwind for precious metals, which don’t bear interest. 

Meanwhile, US Central Command said its forces will resume blockading maritime traffic entering and exiting Iranian ports on July 14 at 4 p.m. ET, after President Donald Trump said the US would reinstate its blockade of Iranian ships transiting the Strait of Hormuz and demanded a 20% reimbursement on all other cargo shipped through the waterway. Earlier, American forces carried out strikes in response to an attack on a container ship, Central Command said. Brent crude jumped more than 5% intraday. 

For gold, elevated energy prices raise the prospect of the US central bank hiking rates to combat stubborn inflation. 

“Renewed geopolitical tension has sent another shockwave through an already fragile gold market,” said Hebe Chen, an analyst at Vantage Markets in Melbourne. “Unless the fighting around Hormuz meaningfully settles and turns a new page for precious metals, elevated oil prices, firmer yields and a stronger dollar could keep gold pinned under pressure this week.”

Gold is down by more than a fifth since the Iran war started in late February, with a wave of profit-taking ending a three-year bull run and briefly pushing the metal below $4,000 for the first time since November.

The latest pressure on gold comes as Kevin Warsh prepares to make his first appearance before Congress as Fed chairman. Tuesday’s House Financial Services Committee hearing in Washington will be preceded by June consumer price figures from the Bureau of Labor Statistics.

Spot gold dropped 2.9% to $ 3,998.59 an ounce as of  3:24 p.m. in New York. Silver fell 4.0%. Platinum and palladium were both lower. The Bloomberg Dollar Spot Index, a gauge of the strength of the greenback, was up 0.3%.  

(By Yvonne Yue Li)