Gold Steady as Markets Assess Middle East Escalation, Fed Hike Bets

Gold prices held steady on Monday as markets grappled with a heightened conflict in the Middle East and the prospect of further US interest rate hikes. The ongoing escalation pushed oil prices up more than 3%, adding to inflation concerns.

US forces conducted strikes in Iran for the ninth consecutive day, increasing the number of confirmed American military deaths to three. This heightened geopolitical tension has raised concerns over the security of shipping through the vital Strait of Hormuz, a key chokepoint for global oil transport. "The war is still ongoing, with a focus on rising oil prices that could lead to higher inflation, which is keeping gold pressured," said Brian Lan, Managing Director at GoldSilver Central.

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The war is still ongoing, with a focus on rising oil prices that could lead to higher inflation, which is keeping gold pressured.

Despite gold typically being viewed as an inflation hedge, rising interest rates increase the opportunity cost of holding the non-yielding asset. Cleveland Fed President Beth Hammack joined a growing number of policymakers suggesting that interest rates may need to be raised further to combat persistent inflation. This has intensified debate ahead of the Fed's next meeting on July 29. Traders are now pricing in an 82% probability of a December interest-rate hike, up from 73% last week, according to CME FedWatch tool.

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$4,000 has been an important level, and shows that there is support for the metal when it falls below that mark.

"$4,000 has been an important level, and shows that there is support for the metal when it falls below that mark," Lan added. However, Kelvin Wong, a senior market analyst at OANDA, expressed caution for the longer term. "In the longer term, I'm more cautious on gold and looking at the key $3,886 level, which, if taken out on the downside, could potentially unleash further weakness towards $3,500," he stated.

In other precious metals markets, spot silver gained 1.8% to $56.91 per ounce, platinum rose 0.8% to $1,603.99, and palladium increased by 1.2% to $1,263.14.

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In the longer term, I'm more cautious on gold and looking at the key $3,886 level, which, if taken out on the downside, could potentially unleash further weakness towards $3,500.