Gold Slips from Two-Week Peak as Oil Advances; Fed Meeting in Focus

Gold prices eased on Thursday, retreating from a two-week peak as escalating Middle East tensions propelled oil prices higher, simultaneously fueling inflation worries. Traders are now shifting their attention to the Federal Reserve's upcoming meeting next week, seeking indicators regarding the timing of potential interest rate adjustments.

Spot gold saw a modest decline of 0.2% to $4,122.49 per ounce, after reaching $4,165.87 in the prior session, its highest point since July 7. US gold futures for August delivery also fell by 0.6% to $4,125.30. Jigar Trivedi, a senior research analyst at IndusInd Securities, noted, "Oil continues to be up, adding to pressures of inflation and expectations of Fed interest rate hikes, capping a positive undertone in gold as the dollar weakens."

Oil prices surged to over six-week highs, influenced by new US strikes on Iran and Houthi attacks on oil tankers in the Red Sea. Concurrently, the US dollar weakened by 0.2%, making dollar-denominated gold more accessible to buyers using other currencies. Rising oil prices have intensified concerns that renewed energy supply disruptions could reignite inflation, thereby increasing the likelihood of Federal Reserve interest rate hikes.

While the Federal Reserve is widely expected to maintain current interest rates at its upcoming meeting, futures markets are pricing in at least one rate hike by the end of the year, with a 77% chance currently assigned to a September increase. Historically, higher interest rates tend to diminish the attractiveness of non-yielding assets like gold. Meanwhile, the European Central Bank is also anticipated to hold rates steady but may signal a future hike.

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Oil continues to be up, adding to pressures of inflation and expectations of Fed interest rate hikes, capping a positive undertone in gold as the dollar weakens