Gold Prices Slip as Surging Oil Costs Fuel Inflation Fears

Gold prices tumbled on Thursday, falling from a two-week peak as escalating geopolitical tensions in the Middle East drove crude oil prices higher. The surge in energy costs has stoked global inflation concerns, sparking fears that the US Federal Reserve may maintain a hawkish stance on interest rates.

Spot gold fell by 0.6 per cent to $4,103.39 per ounce, pulling back from Wednesday’s high of $4,165.87, which had marked its highest level since 7 July. US gold futures forAugust delivery experienced an even sharper decline, dropping 1.1 per cent to settle at $4,106.40 per ounce.

The retreat in bullion follows a sharp rally in crude oil, which hit a six-week high after recent military strikes involving US forces against Iranian targets and Houthi rebels in Yemen. Continued attacks on oil tankers traversing the Red Sea have further disrupted global maritime trade routes, pushing shipping costs and energy prices upward. These elevated energy costs threaten to feed directly into broader consumer price indices, complicating central bank efforts to rein in inflation.

Jigar Trivedi, senior research analyst at IndusInd Securities, noted that rising crude prices are compounding inflationary pressures. Expectations that the Federal Reserve may respond by keeping borrowing costs elevated continue to exert downward pressure on non-yielding assets like gold.

Financial markets broadly expect the US central bank to leave interest rates unchanged at its upcoming policy meeting next week. However, traders are increasingly pricing in the likelihood of at least one additional rate hike before the end of the year. According to the CME FedWatch Tool, expectations of a rate increase in September currently stand at 77 per cent. Higher interest rates typically diminish the appeal of bullion, as investors seek higher returns in yield-bearing assets such as US Treasury bonds.

The downturn extended across the broader precious metals market. Spot silver dropped 1.3 per cent, platinum shed 1 per cent, and palladium decreased by 1.2 per cent as commodity traders reassessed their portfolios amid shifting macroeconomic signals.