Gold prices fell more than 2% on Monday as a rise in oil prices heightened inflation concerns and reinforced expectations of further Federal Reserve interest-rate hikes.
Spot gold was down 2.7% at $4,171.85 per ounce, as of 0627 GMT, hitting its lowest since early August. US gold futures fell 2.7% to $4,204.30.
"The high bond yields and high oil price tandem continues to act as a thorn in gold’s side. Oil prices have risen on mixed signals about oil flows, which is keeping inflation front and centre for investors," said Tim Waterer, chief market analyst at KCM Trade.
Iran insisted that only diplomacy can solve its conflict with the United States and Israel, after US President Donald Trump said he rejected an Iranian proposal to reopen the Strait of Hormuz and end fighting. Oil prices drifted higher.
The Fed raised rates earlier this month, lifting its target rate range by a quarter percentage point to between 3.75% and 4%. Traders are pricing in a 69% chance of a US rate hike in October, according to CME's FedWatch Tool.
Higher energy prices can fuel inflation by raising costs across the economy. Gold is widely viewed as a hedge against inflation, but a high interest rate environment increases the opportunity cost of holding the non-yielding metal.
Investors will watch a run of US labour market and inflation data this week, including job openings, the ADP employment report, the Personal Consumption Expenditures (PCE) price index and nonfarm payrolls.
"Stronger-than-expected inflation or employment numbers could keep upward pressure on bond yields and weigh further on gold," Waterer said.
Cleveland Fed President Beth Hammack said on Friday she is concerned that persistently high inflation risks conditioning the American public to accept elevated prices as the norm, adding the central bank cannot let that happen.
Among other metals, spot silver fell 4.3% to $61.51 per ounce, platinum was down 2.8% at $1,728.43 and palladium lost 3.1% to $1,227.67. - Reuters
