Gold retreats from two-week high as oil rally fuels rate hike concerns

Gold prices fell on Thursday from a two-week high reached in the previous session, as rising oil prices added to inflation concerns and strengthened expectations that the US Federal Reserve could raise interest rates later this year.

Spot gold declined 0.6% to $4,103.39 per ounce by 0713 GMT after touching $4,165.87 on Wednesday, its highest level since July 7. US gold futures for August delivery dropped 1.1% to $4,106.40.

Oil prices rose to their highest level in more than six weeks after the United States launched another round of strikes on Iran and Yemen’s Houthis targeted oil tankers in the Red Sea.

“Oil continues to be up, adding to pressures of inflation and expectations of Fed rate hikes, capping a positive undertone in gold as the dollar weakens,” said Jigar Trivedi, senior research analyst at IndusInd Securities.

The dollar eased 0.1%, making gold cheaper for buyers using other currencies. However, two-year US Treasury yields climbed to a 17-month high as higher oil prices raised concerns that renewed energy disruptions could revive inflation.

The Federal Reserve is widely expected to keep interest rates unchanged at its meeting next week, but futures markets are pricing in at least one increase by the end of the year.

Traders see a 77% probability of a rate hike in September, according to the CME FedWatch Tool. Higher interest rates generally reduce the appeal of non-yielding assets such as gold.

The European Central Bank is also expected to leave rates unchanged on Thursday while keeping open the possibility of another increase in September.

Among other precious metals, spot silver fell 1.3% to $58.90 per ounce, platinum declined 1% to $1,628.63 and palladium dropped 1.2% to $1,274.96.