Gold holds near $4,019 as Middle East tensions and Fed rate hike bets weigh

Gold prices were largely unchanged on Monday as investors weighed an escalation in the Middle East conflict, rising oil prices and growing expectations that the US Federal Reserve may increase interest rates.

Spot gold stood at $4,018.90 per ounce at 0455 GMT, while US gold futures for August delivery edged 0.1% higher to $4,023.10.

Oil prices rose more than 3% after US forces carried out strikes against Iran for a ninth consecutive day. Concerns over shipping through the Strait of Hormuz also increased as confirmed US military deaths in the renewed fighting rose to three.

GoldSilver Central Managing Director Brian Lan said the continued conflict and higher oil prices were increasing inflation concerns, placing pressure on gold. However, he said the metal continued to find support around the $4,000 level.

Higher oil prices can fuel inflation and strengthen expectations that interest rates will remain elevated. Although gold is commonly considered a hedge against inflation, higher rates increase the opportunity cost of holding the non-yielding asset.

Cleveland Fed President Beth Hammack said interest rates may need to rise to address persistent inflation, adding to debate ahead of the Federal Reserve’s next meeting on July 29.

Traders now see an 82% probability of an interest rate increase in December, compared with 73% last week, according to the CME FedWatch tool.

OANDA senior market analyst Kelvin Wong said gold could face further weakness if prices fall below the key level of $3,886, potentially opening the way towards $3,500.

Among other precious metals, spot silver rose 1.7% to $56.87 per ounce. Platinum was unchanged at $1,592.34, while palladium gained 0.1% to $1,249.25.