Gold Prices Extend Losses Amid US Rate Hike Fears and Middle East Tensions

Gold prices continued their downward trend on Monday, falling 1% to $4,287.66 per ounce, as concerns over potential US interest rate hikes intensified. This decline follows a significant 3% drop on Friday, pushing prices to their lowest since March 24.

The market's anticipation of a hawkish stance from the Federal Reserve, fueled by a robust US jobs report, is a primary driver of the sell-off. "It is all based on the hawkishness that the market has started to place on the Fed futures," noted Kelvin Wong, a senior market analyst at OANDA. Higher Treasury yields further exacerbated the pressure on gold, as the increased opportunity cost of holding non-yielding bullion becomes more pronounced.

Adding to market volatility, renewed hostilities in the Middle East saw oil prices surge by more than $3 a barrel. This escalation fanned inflation concerns, creating a complex environment where gold, typically a hedge against inflation, faces headwinds from rising interest rates. The US economy's strong job gains in May provide the Federal Reserve with room to maintain or even raise rates to combat persistent inflation.

Markets are currently pricing in a high probability of a Fed rate hike before the end of the year, with CME Group's FedWatch tool indicating a 72% chance of a move by December. Cleveland Fed President Beth Hammack recently commented on the labor market's balance and near-full employment, suggesting that high inflation might necessitate a rate increase soon.

Other precious metals also experienced losses, with spot silver down 2.2% at $66.33 per ounce, platinum losing 2.1% to $1,739.78, and palladium falling 1.5% to $1,207.50.

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It is all based on the hawkishness that the market has started to place on the Fed futures.