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Gold Prices Edge Lower Amid Fed Hike, Middle East Tensions

11:12 PM ETConfirmed

Business Desk

In Short: Gold prices edged lower to near $4,350 as hawkish Fed comments and rising Middle East tensions weighed on the market.

Gold prices edged lower to near $4,350 on Monday, influenced by hawkish comments from Federal Reserve policymakers and escalating tensions in the Middle East.

Reuters reported that governments across the Middle East are bracing for an escalation of violence after Iran claimed it had received intelligence that Washington was preparing for a renewed bombing campaign against the Islamic Republic.

Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.

Central banks added 1,136 tonnes of gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council.

Rising tension in the Middle East could raise oil-driven inflation concerns, weighing on the gold price.

Strategists at OCBC note that “near term, elevated yields and a firmer USD may continue to cap gold,” with the recent Fed outcome reinforcing the headwinds from higher US rates and a strong Dollar.

However, they stress that this does not “necessarily undermine the broader medium-term case,” arguing that “with a fairly hawkish rate path already in the price, softer US data could pull yields and the dollar lower again,” potentially restoring support for the metal.

Meanwhile, the US Dollar stands firm near a two-week high as the anticipated Fed rate hike and oil-driven inflation fears continue to push US bond yields to a multi-year high.

The BRICS group of nations has unanimously adopted a joint declaration, calling for calm in the Middle East and stressing the need to work together to maintain the smooth flow of global trade, supply chains, and energy.

Indian Prime Minister Narendra Modi managed to steer rival BRICS nations towards a joint statement despite competing positions over issues ranging from an escalating war in the Middle East to trade.

The BRICS New Delhi Declaration expressed deep concern over escalating tensions in the Middle East and West Asia and called for maximum restraint to prevent further deterioration of the situation.

What this adds

Background

What's confirmed

• He said the fighting in the Middle East did not serve the world’s interests.

What's still developing

• Fed’s Schmid delivered a distinctly hawkish message, with an FXS Speechtracker score of 8/10, above the historical average of 7.2/10 and signaling a firmer tightening bias relative to the established baseline.
• Multiple U.S. embassies in the Middle East warned Americans Tuesday of the "potential for unforeseen escalation" as U.S. Central Command launched fresh strikes on Iran.
• U.S. Navy E/A 18G electronic-warfare aircraft patrol the skies over the Middle East as the U.S. military is enforcing a blockade of Iranian ports, according to CENTCOM. (CENTCOM) "The situation in the Middle East remains fluid," the message also said.
• Fox News chief foreign correspondent Trey Yingst reports from Tel Aviv and on escalating tensions as the U.S.
• Treasury yields climbed, pressuring high-valuation tech stocks, while Middle East geopolitical tensions heightened supply risks.
• Moreover, rising US-Iran tensions underpin the USD's reserve currency status.
• Gold retains intraday gains but eases from its intraday peak following the Federal Reserve's decision to hike rates by 25 bps as expected.
• “The current developments in the Middle East and their negative repercussions on the global economy, trade and energy flows, and supply chains affirm the close link between security and development,” he said.
• The presidency of the 11-member bloc has passed to New Delhi at a difficult moment, with wars in the Middle East and Ukraine disrupting energy and shipping, tariffs squeezing members, and BRICS countries at odds over how to answer either challenge.
• “As the situation in the Middle East and the Gulf region continues to evolve, the war there has caused serious losses to people across the region,” China’s Xinhua quoted Xi as saying.
• Published ahead of the central bank's September 15–16 policy meeting, the report revealed positive overall sentiment tempered by growing uncertainty around rising energy costs, tariffs, and Middle East conflict.
• Persistent bond-market weakness and escalating US-Iran tensions kept investors cautious.

Sources

• FXStreetlink
• Fox Newslink
• Tradingkeylink
• The Indian Expresslink
• Thestatesmanlink
• Fxstreetlink
• Al Jazeeralink
• Economictimeslink
• Independentlink
• Straitstimeslink
• Oilpricelink
• Devdiscourselink
• Share-Talklink
• WarpBeat — background on Oil Prices Could Reach $120 as Middle East Tensions Rise link
• Business Today — video link