Rising oil prices and escalating Middle East conflict spur bets on Fed tightening, pressuring non-yielding assets like gold.
Gold (XAU/USD) fell to near $4,050 in early Asian trading Friday, retreating from a two-month high. The decline follows heightened Middle East tensions, including Houthi attacks on Saudi oil tankers and US strikes on Iran, which lifted oil prices and stoked inflation concerns.
Markets are now pricing a 35.8% chance of a Fed rate hike this month and an 82.1% probability of a quarter-point increase in September, according to CME’s FedWatch tool. Higher rates typically weigh on gold, a non-yielding asset.
The conflict escalation has amplified fears of broader regional instability, further fueling expectations of tighter monetary policy to curb inflationary pressures.