Gold eases as Middle East tensions revive inflation concerns

Gold prices eased on Thursday as ongoing tensions in the Middle East heightened inflation worries, adding uncertainty to the trajectory of U.S. interest rates. Spot gold fell 0.7% to $4,032.19 per ounce by 0834 GMT, while U.S. gold futures dropped 0.4% to $4,037.20. "Gold continues to be dictated by inflation and geopolitics. Continued U.S. strikes against Iran and disruptions in the Strait of Hormuz support oil prices and sustain inflationary risks," said Niko Tzabouras, a senior market analyst at Jefferies-owned Tradu.com. On Wednesday, the U.S. launched two waves of attacks on Iran's coastal defenses and missile sites after reimposing a naval blockade of its ports, while Iran struck back by hitting U.S. military sites in neighbouring countries. The latest escalation comes days after a fragile truce collapsed, fuelling concerns around the control of the Strait of Hormuz. Crude oil prices are set for a weekly rise. Elevated energy prices are fuelling inflation concerns, bolstering expectations of higher interest rates and denting gold's appeal as a non-yielding safe-haven asset. Traders are pricing in about a 51% chance of a rate hike in September, data from the CME FedWatch Tool showed. Fed Chair Kevin Warsh this week declared his determination to bring inflation down without specifically hinting at how. Meanwhile, data released on Tuesday showed that U.S. consumer inflation slowed in June, prompting spot gold prices to jump more than 2% immediately after the report. Data released on Wednesday also showed a decline in the producer price index. "The soft CPI and PPI prints remove the urgency for Fed tightening and that can offer a basis for bullion to eventually resume its rebound. However, this inflation cooling may prove short-lived as oil prices rise again. Any de-escalation or restart of (peace) talks would be the best-case scenario for gold," Tzabouras added. Market participants now await remarks from Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson, due to speak later in the day. Spot silver dropped 1.7% to $56.82 per ounce, platinum slid 1.2% to $1,654.38, and palladium dipped 1.5% to $1,294.43.