Gold under pressure on inflation, Iraq supplies, Iran crisis

Gold is down 0.7% to near $4,030 in European trading on Thursday, as XAUUSD faces selling pressures amid global inflation concerns and elevated energy prices in the wake of widening military aggression between the US and Iran.

A drone crash into an oil tanker in Iraq’s Basra terminal resulted in the suspension of all crude loading at Iraqi terminals. This has renewed fears of lower oil supply, a scenario that will keep energy prices elevated.

The scenario of higher energy prices de-anchors global inflation expectations, which prompts fears of tight monetary conditions by central banks. Theoretically, higher interest rate hike expectations bode poorly for non-yielding assets and precious metals, such as gold.

The war between the US and Iran could intensify further, as President Donald Trump has warned of authorising forces to attack Iranian infrastructure, most probably next week, if the nation doesn’t return to the table for negotiations, according to his comments in an interview with Fox News on Wednesday.

Meanwhile, easing hawkish Fed prospects are likely to limit the downside in the gold price. Traders have dialed down the Fed’s interest rate hike expectations as US consumer and producer inflation has cooled down in July.

According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the July meeting have eased to 10.2% from 24.6% recorded a week ago.

(Source: OANDA)