Gold fell for a third straight week and dropped further Monday after weekend attacks near Saudi Arabia's oil infrastructure and the Strait of Hormuz drove up oil prices and Fed rate hike expectations. Traders are now focused on this week's Fed decision, with rising bond yields and a firmer dollar pressuring gold toward $4,100 and possibly $4,000.
Gold December futures opened at $4,375 per troy ounce on Monday, down 0.8% from Friday's close, then slipped further to $4,332.50 as of 7:02 a.m. ET. By mid-morning London trade, the metal was down around 1%, extending a slide that has now lasted three consecutive weeks.
Middle East attacks fail to lift gold
Weekend attacks targeted a Saudi Arabian oil pipeline, homes, and a mosque, and reports said a vessel was struck in the Strait of Hormuz. Escalating tensions in the Middle East are driving oil prices higher and raising expectations that the Fed will raise interest rates this week, and those rate hike expectations are weighing on gold prices for now.
The metal's downward trend began Friday, before data showed consumer prices rose 3.4% in August. Gold briefly recovered after the CPI print but faded into Friday's close, still finishing the session 0.7% higher — gains that have since evaporated.
Yields and the dollar add pressure
Oil's surge is adding a major source of inflationary pressure to an already difficult backdrop just as the Fed prepares to meet. The 10-year Treasury yield came close to 5% last week, a psychologically important level, while the dollar has firmed alongside rising rate hike expectations. Higher real yields raise the opportunity cost of holding gold, which pays no interest.
Kevin Warsh has also warned about the risk of inflation staying above target for too long. Markets are now asking whether a Wednesday rate hike would be a one-off move or the start of a renewed tightening cycle.
Key levels traders are watching
Resistance around $4,400 has held despite several tests, and gold broke below short-term support at $4,324 on Monday. A move back toward $4,100 would not be surprising around Wednesday's Fed decision, with a break below that level opening the door to $4,000 and then the June low near $3,942.
A recovery above $4,400 would be needed to revive the bullish case, with $4,500 and the 200-day moving average near $4,538 as the next levels above that.
Sources: Yahoo Finance, Investing.com
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