By: Economy Middle East

Gold prices fell on Monday as escalating tensions in the Middle East drove oil prices sharply higher, fueling inflation concerns and strengthening expectations that the U.S. Federal Reserve could keep interest rates higher for longer.

Spot gold fell 0.56 percent to $4,064.67 per ounce by 9:38 UAE time, while U.S. gold futures for August delivery declined 1.01 percent to $4,072.17.

The precious metal came under pressure as investors shifted toward the U.S. dollar following renewed military escalation between the United States and Iran.

UAE gold rates decline

Gold rates in the UAE also moved lower across all major purities, as 24-carat gold fell AED7.75 to AED488.75, 22-carat dropped AED7.25 to AED452.50, 21-carat declined AED6.75 to AED434.00, 18-carat lost AED5.75 to AED372.00, and 14-carat fell AED4.50 to AED290.25.

The decline follows weakness in international bullion prices and stronger expectations for tighter monetary policy.

Middle East tensions drive inflation concerns

Markets remain focused on the escalating conflict between the United States and Iran.

The two sides exchanged heavy missile and drone attacks over the weekend, with Tehran targeting U.S. military facilities across Gulf states while announcing that it had once again closed the Strait of Hormuz.

The renewed conflict pushed oil prices up around 4 percent, while the U.S. dollar and Treasury yields strengthened.

Higher energy prices have renewed concerns that inflation could remain elevated, increasing pressure on central banks to maintain restrictive monetary policy.

Fed outlook in focus

Investors are closely watching upcoming U.S. economic events for further guidance on inflation and interest rates.

Federal Reserve Chair Kevin Warsh is scheduled to deliver his first semiannual testimony before Congress, while several key economic reports—including June Consumer Price Index (CPI), Producer Price Index (PPI) and retail sales data—are due later this week.

Markets will also monitor comments from Federal Reserve officials, including Vice Chair Michelle Bowman and Governor Christopher Waller, for further insight into the central bank’s policy outlook.

Markets increase rate hike expectations

According to the CME FedWatch Tool, traders are now pricing in a 72 percent probability of a Federal Reserve interest rate hike in September, compared with around 63 percent one week earlier.

Higher interest rates generally weigh on gold because the precious metal does not generate interest income, making interest-bearing assets relatively more attractive.

The stronger U.S. dollar has also reduced demand for gold by making bullion more expensive for buyers using other currencies.

Other precious metals also drop

The broader precious metals market also traded lower on Monday. Spot silver decreased by 1.16 percent to $58.35 per ounce, platinum declined by 1.06 percent to $1,611.80, and palladium fell by 2.06 percent to $1,234.00.

Investors are expected to remain focused on geopolitical developments and U.S. economic data as both continue to influence precious metals prices.