Gold (XAU/USD) fell towards an eight-month low of about $3,975 in early Asian trade on Friday, extending losses as renewed Middle East tensions fuelled inflation worries and reinforced expectations that US interest rates will stay elevated. Reuters reported that Iran has asked Yemen’s Houthi movement to be ready to close the Red Sea oil route if the US strikes Iranian power infrastructure, following a threat by US President Donald Trump earlier in the week. A disruption to Red Sea shipping, alongside risks tied to the Strait of Hormuz, could lift crude prices and keep central banks inclined to maintain restrictive policy, reducing the appeal of a non-yielding asset such as gold.
Geopolitical Tensions and Inflation Concerns
The geopolitical backdrop has outweighed recent disinflation signals in the US. June Consumer Price Index (CPI) inflation slowed, while the Producer Price Index (PPI) also declined, according to data released this week. Even so, markets are pricing nearly a 55% probability of a Federal Reserve rate increase in September, based on the CME FedWatch Tool. Separately, World Gold Council data show central banks added 1,136 tonnes of gold worth about $70 billion to reserves in 2022, the highest annual purchase on record.
