Gold fell below $4,300 an ounce on Monday as expectations of a US interest rate increase strengthened, with a firmer dollar outweighing demand for traditional safe-haven assets amid escalating Middle East tensions.
Spot gold was trading around $4,286 an ounce, down roughly 0.9% on the session, extending its decline after a third consecutive weekly fall. Silver was also under pressure, dropping around 2% to $62.52 an ounce.
The sell-off followed hotter-than-expected US inflation data, which increased expectations that the Federal Reserve will raise rates at its policy meeting this week. Traders were pricing in an 89% probability of an increase, up from around 67% before the latest inflation figures, while Goldman Sachs and HSBC expect a 25 basis-point move.
Higher rates typically weigh on gold because the metal pays no interest, while the resulting strength in the US dollar makes bullion more expensive for buyers using other currencies.
The picture is complicated by the renewed surge in oil prices. Brent climbed above $108 a barrel as attacks on Saudi Arabian infrastructure and disruption around the Strait of Hormuz intensified inflation concerns, potentially giving the Fed another reason to maintain a hawkish stance.
Gold's safe-haven appeal has nevertheless limited the extent of the decline. FXStreet noted that geopolitical uncertainty remained elevated, while ANZ said Middle East tensions and investment demand could continue supporting bullion over the longer term despite tighter monetary policy.
