Gold Holds Decline on Renewed Hormuz Blockade and Hawkish Fed

Gold held a decline as escalating hostilities in the Strait of Hormuz and remarks by a US monetary policymaker raised the likelihood of interest-rate hikes to contain inflation.

(Bloomberg) — Gold held a decline as escalating hostilities in the Strait of Hormuz and remarks by a US monetary policymaker raised the likelihood of interest-rate hikes to contain inflation. Bullion dipped below $4,000 an ounce after falling nearly 3% on Monday, the most in over two weeks.

President Donald Trump demanded a 20% reimbursement on cargoes transiting the waterway after US forces reinstated a naval blockade to and from Iranian ports and launched a third consecutive night of strikes against the Islamic Republic. Crude prices extended gains, paring a second-quarter drop of about 30%, as the renewal of fighting in the Middle East rekindled concerns over supplies from the region. For gold, elevated energy prices heighten the prospects that the Federal Reserve may need to keep interest rates higher for longer to combat stubborn inflation.

Further fanning these concerns, Fed Governor Christopher Waller said Monday that policymakers may need to raise rates in the near term. Swap traders are now pricing in a 43% chance of a rate hike at the Fed’s July meeting, up from nearly 40% before his remarks. Higher borrowing costs are a headwind for non-yielding precious metals.

Traders will be watching Kevin Warsh’s first appearance before Congress as Fed chairman later Tuesday for clues on the central bank’s rate outlook. The House Financial Services Committee hearing will be preceded by June consumer price figures from the Bureau of Labor Statistics. Spot gold slipped 0.1% to $3,996.63 an ounce as of 7:48 a.m. in Singapore.

Silver fell 0.3% to $57.50 an ounce. Platinum edged lower, while palladium gained. The Bloomberg Dollar Spot Index, a gauge of the US currency, was flat after ending the previous session up 0.3%.