XAU/USD drops as Middle East tensions fuel inflation fears and strengthen bets on prolonged US rate hikes.
Gold prices fell to an eight-month low of $3,975 in early Asian trading Friday, extending losses as escalating Middle East tensions stoked inflation concerns. Reports that Iran directed Yemen’s Houthis to prepare to block the Red Sea heightened risks to global energy supplies, potentially driving crude prices higher and pressuring central banks to maintain elevated interest rates.
The decline follows recent US inflation data showing a slowdown in June’s Consumer Price Index and a drop in the Producer Price Index. Despite this, traders now assign a 55% probability of a Federal Reserve rate hike in September, according to the CME FedWatch Tool, reducing gold’s appeal as a non-yielding asset.
Market focus shifted from easing inflation optimism to geopolitical risks, overshadowing the softer economic prints. Gold’s role as a safe-haven asset is being tested by expectations of tighter monetary policy amid persistent inflationary pressures.