Gold Holds Decline as Surging Energy Costs Raise Rate-Hike Bets

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(Bloomberg) — Gold held a retreat as the widening conflict in the Middle East pressured energy prices and increased expectations the US Federal Reserve will tighten monetary policy to contain inflation.

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Bullion was trading around $4,050 an ounce after falling 2% the day before, erasing much of the gain from the previous two sessions that was largely fueled by dip-buying.

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The war is in a new phase of escalation after the effective collapse of a truce signed last month. President Donald Trump has threatened to step up strikes on Iran and said he’ll hold the country responsible for any further attacks by Yemen-based Houthis on Red Sea ships. Benchmark Brent crude oil rallied above $100 a barrel for the first time since May, while two-year Treasury yields rose for a sixth straight day on Thursday. 

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Adding to the uncertainty, the US announced it will collect duties of between 10% and 12.5% on imports from most major trading partners, alleging forced labor in their supply chains. It is Trump’s broadest move toward restoring his protectionist tariff regime since his earlier levies were struck down by the Supreme Court. 

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Rising energy prices, alongside a seemingly resilient US labor market, increase the possibility that the Fed will raise interest rates. Higher borrowing costs are a headwind for the non-yielding precious metal.

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Fast money has “quickly turned sellers in gold” again as energy prices surged and inflation concerns re-emerged, TD Securities analysts including Ryan McKay said in a note. For silver, a break below $55.19 an ounce might trigger fresh selling, they added.

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Swap traders currently see a 34% chance that the Fed will lift rates at its meeting next week. At least one hike is already priced in for September, and a second could come before the end of the year. 

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Gold has largely hovered around $4,000 since late June, which some traders see as a key support level. It’s down by roughly a quarter since the US and Israel launched strikes on Iran in late February, helping to end a multiyear bull run that had carried the metal to a record high near $5,600 the month before.

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Spot gold was little changed at $4,048.25 an ounce as of 7:45 a.m. in Singapore. Silver was flat at $57.62 an ounce, after falling 3.6% in the prior session. Platinum and palladium edged lower. The Bloomberg Dollar Spot Index, a gauge of the US currency, was marginally lower after rising 0.3% on Thursday.

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