Gold Falls as Middle East Tensions Raise Inflation Concerns

Gold prices fell below $4,100 per ounce on Friday as higher oil prices tied to Middle East tensions raised inflation concerns and strengthened expectations of tighter US monetary policy. The metal dropped after renewed US-Iran hostilities lifted oil prices, increasing supply concerns and supporting expectations that central banks could keep interest rates higher for longer. "Gold has weathered a hostile mix of higher oil prices, rising bond yields, and renewed fears of US rate hikes," wrote Ole Hansen, Head of Commodity Strategy at Saxo Bank, in a Friday note, adding that "resilience is reinforcing the view that bullion has moved out of capitulation and into a consolidation phase." Higher borrowing costs usually reduce gold's appeal because the metal offers no yield, while traders assigned a 62% probability to a September rate hike and June Federal Reserve minutes showed persistent inflation concerns. Markets now await next week's inflation data and Federal Reserve Chair Kevin Warsh's testimony. At the time of writing, XAU/USD was trading at $4,093, down 0.73%.