Gold Holds Near $4,440 as US-Iran Clashes Resume, Rate-Hike Fears Cap Gains

Gold traded in a narrow range near $4,440 as rising oil prices fueled inflation concerns and renewed worries over further US interest-rate increases.

As of 8:52 a.m. on Sept. 1, spot gold rose 0.2% from the previous session to $4,448.64 an ounce. The metal had dropped more than 3.5% over the prior two trading days.

Bloomberg said renewed military clashes between the US and Iran had added fresh uncertainty to the outlook for gold. US forces attacked an Iranian island in the Strait of Hormuz, and Iran retaliated by striking the United Arab Emirates and Jordan. The two sides had not exchanged direct attacks for about a month.

The latest confrontation also revived concerns over energy supplies through the Strait of Hormuz, sending crude prices higher. Oil posted its biggest jump in three weeks the previous day and extended gains on Sept. 1.

Higher oil prices are proving to be a double-edged factor for gold. Geopolitical tensions can boost demand for the metal as a haven asset. But if rising energy costs intensify US inflation pressures, they could also strengthen the case for further tightening by the Federal Reserve. Gold, which pays no interest, typically becomes less attractive when rates rise.

Gold climbed about 10% in August, marking its strongest monthly gain since January. The move reflected a revival of the so-called debasement trade after the US Treasury unexpectedly announced an expansion of bond buybacks in mid-August, prompting investors to seek protection against sovereign debt and currency debasement.

The rally lost momentum after Fed Chair Kevin Warsh emphasized the need to curb inflation at the Jackson Hole economic symposium on Aug. 28 and signaled the possibility of further tightening. Markets now price in more than a 60% chance of a rate increase at the Federal Open Market Committee meeting on Sept. 15-16.

After the recent decline, gold slipped back below its 200-day moving average, a key market trend indicator. Silver was little changed at $66.56 an ounce at the same time, while platinum and palladium also showed limited movement. The Bloomberg Dollar Spot Index was steady after falling 0.2% the previous day.