By: Economy Middle East

Gold prices slid to their lowest level in 11 weeks on Wednesday as a stronger dollar and higher oil prices, driven by renewed tensions between the United States and Iran, raised concerns about inflation and the likelihood of interest rate hikes.

As of 4:32 GMT, spot gold fell 2.08 percent to $4,173.55 per ounce after touching its lowest level since March 23, while U.S. gold futures for August delivery declined 2.09 percent to $4,196.97.

In the UAE, gold rates posted major declines, with 24-carat gold losing AED10.75 to AED503.5 and 22-carat gold falling AED10 to AED466.25.

Additionally, 21-carat gold edged AED9.75 lower to AED447, and 18-carat gold fell AED8.25 to AED383.25.

Meanwhile, 14-carat gold fell AED6.5 to AED298.75.

Surge in U.S. dollar and oil prices weighs on gold

The U.S. dollar strengthened, making dollar-denominated gold more expensive for buyers using other currencies. Meanwhile, oil prices climbed back above $92 a barrel, fuelling inflation concerns and reinforcing expectations that interest rates could remain elevated for an extended period.

“Gold’s correction deepened over the past week after stronger-than-expected U.S. jobs data and renewed inflation concerns combined to push bullion below its 200-day moving average for the first time since October 2023,” said Ole Hansen, Head of Commodity Strategy, Saxo Bank.

“The move marks an important technical setback for a market that has spent much of the past four years in a powerful uptrend, supported by central bank buying, geopolitical uncertainty, fiscal debt concerns and persistent demand for portfolio diversification,” he added.

Tensions in the Middle East intensified after the United States launched strikes on Iran on Tuesday, following President Donald Trump’s statement that Tehran had downed a U.S. Apache helicopter in the Strait of Hormuz. The developments cast further doubt on the prospects for a peace agreement and added strain to an already fragile truce.

In response, Iran’s Revolutionary Guards said on Wednesday that they had carried out attacks on a U.S. military base in Jordan and 21 other targets across the Gulf, describing the strikes as retaliation for the U.S. action.

Traders see 70 percent chance of rate hike by December

Traders are now pricing in more than a 70 percent probability of a U.S. interest rate hike by December, according to the CME FedWatch Tool.

Although gold is traditionally viewed as a hedge against inflation, higher interest rates tend to reduce the appeal of the non-yielding asset.

Investors are also awaiting key U.S. inflation data this week, including the May Consumer Price Index (CPI) report due later on Wednesday and the Producer Price Index (PPI) data scheduled for Thursday, for further clues on the Federal Reserve’s monetary policy outlook.

“Inflation developments will remain the dominant short-term driver. Wednesday’s U.S. CPI report is likely to attract significant attention as investors attempt to assess whether higher energy costs are beginning to feed through more broadly into consumer prices,” said Hansen.

“This will be followed by the June 17 FOMC meeting, the first chaired by Kevin Warsh, a meeting that may provide fresh clues regarding how concerned policymakers are becoming about the inflation outlook,” he added.

Other precious metals

As gold prices declined, the precious metals market saw downward movement. Spot silver fell 2.1 percent to $64.01 per ounce, platinum dropped 3.4 percent to $1,667.92, and palladium declined 1.5 percent to $1,204.24.