Gold prices declined on Tuesday, setting a course for their most significant monthly loss since October 2008, as expectations for U.S. interest rate hikes to combat high inflation overshadowed concerns stemming from Middle East tensions.
Spot gold fell 0.8% to $3,985.57 per ounce, bringing its decline for June so far to 12.1% and putting it on track for a fourth consecutive monthly drop. U.S. gold futures for August delivery fell 1% to $3,999.20 per ounce.
The precious metal is also set to record its first quarterly decline since 2024 and its largest quarterly drop since the second quarter of 2013. The conflict in Iran has driven up energy prices, fueling inflation worries and strengthening market bets on higher interest rates.
"The current environment of high inflation, high rate expectations, and a strong dollar is overwhelming other typically supportive factors for gold," said Marex analyst Edward Meir.
While gold is traditionally viewed as a hedge against inflation, its appeal diminishes in a high-interest-rate environment.
According to the CME FedWatch Tool, traders are currently pricing in three rate hikes from the Federal Reserve this year, with the market estimating about a 64% chance of a hike in September.
Investors are now awaiting the release of U.S. ADP employment data and non-farm payrolls figures for June later this week to gain further clarity on the Fed's stance regarding rate increases.
A strengthening U.S. dollar, which is on pace for a second straight monthly gain, is making dollar-priced gold more expensive for investors holding other currencies.
Meanwhile, oil prices are on track for their largest quarterly decline since 2020. Market participants are focused on the outcome of talks between Iran and the U.S. in Doha this week, despite Iran stating that no meetings have been scheduled.
"Gold bulls require at least one of three factors to improve: lower real yields, a weaker U.S. dollar, or a significant cooling of market expectations for a hawkish Fed. In the absence of these conditions, any price rebound is likely to face selling pressure, and gold may need more time to consolidate below prior highs," said Christopher Wong, a precious metals strategist at OCBC, in a report.
Spot silver fell 1.3% to $57.53 per ounce, platinum declined 0.7% to $1,563.25, while palladium rose 0.4% to $1,218.07. All three of these precious metals are poised to record both quarterly and monthly losses.
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