Gold tumbles to eight-month low below $4,000 as Middle East tensions reinforce US rate hike bets

NEW YORK (July 16) Gold price (XAU/USD) falls to near an eight-month low around $3,975 during the early Asian session on Friday. The precious metal extends its downside as rising tensions in the Middle East raise inflation concerns and reinforce expectations of elevated US interest rates.

Reuters reported on Thursday that Iran has asked Yemen’s Houthi movement to stand ready to close the Red Sea oil route if the US strikes Iranian power infrastructure, posing a potent new threat to global energy supplies. This action came after US President Donald Trump’s threat to attack Iran's power infrastructure on Tuesday.

Any threat to the Red Sea risks hugely exacerbating the global energy crisis triggered by Iran's closure of the Strait of Hormuz and underscores the explosive risks stemming from a new round of warfare. This, in turn, could push crude oil prices up and could prompt central banks to hold rates at elevated levels for longer, weighing on gold's appeal as a non-yielding asset.

The developments surrounding Middle East conflicts overshadow recent optimism over easing inflation. Data released on Tuesday showed that US Consumer Price Index (CPI) inflation slowed in June, while data from Wednesday showed a decline in the Producer Price ‌Index (PPI). 

Traders are now pricing ‌in nearly a 55% odds that the Federal Reserve (Fed) will hike rates in September, according to the CME FedWatch Tool.

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