Synopsis

Gold prices saw a notable decline amidst rising tensions in the Middle East, driven by concerns over inflation linked to escalating oil prices. The prospect of an interest rate hike from the Federal Reserve in September is keeping traders on edge as they await crucial economic data releases this week. Prices for other precious metals also suffered losses on Monday.

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Gold prices fell more than 1% on Monday as fresh strikes in the Middle East heightened inflation concerns, raising prospects of higher-for-longer U.S. interest rates.

Spot gold was down 1.4% to $4,064.02 per ounce by 9:08 a.m. EDT (1308 GMT). Prices were down for the second straight session.

U.S. gold futures were down 1% ‌to $4,071.80.

"I'm quite bearish ⁠on ⁠gold in the short term. Oil prices are rallying because of the Middle East conflict, and there is potential for policy tightening from the Federal Reserve. This is bad news for zero-yielding assets like gold," said Fawad Razaqzada, market analyst at Forex. com.

"If oil prices continue to push higher, gold prices could break ​down and potentially head towards the $3,800 level initially ⁠and possibly ‌to $3,500 over time if the selling pressure accelerates," he ​added.

U.S. and ​Iranian forces exchanged heavy missile and drone attacks over ⁠the weekend and into Monday, with Tehran saying it ​had struck U.S. military facilities across the Gulf and ​kept the Strait of Hormuz closed, driving oil prices higher. [O/R]

Higher oil prices can fuel inflation by raising energy and transportation costs across the economy, potentially prompting central banks to keep interest rates higher for longer or even raise them further to curb price pressures.

According to the CME ‌Group's FedWatch Tool, traders currently see a 69% chance that the U.S. central bank will raise interest rates in ​September.

On Tuesday, Fed ​Chair Kevin Warsh ⁠is expected to deliver his first monetary policy testimony before Congress. Market participants will scan his remarks for clues on the outlook for rates.

The U.S. ​government is due to release key data this week, including the Consumer Price Index, Producer Price Index, and retail sales reports for June and weekly jobless claims.

Among other metals, spot silver slipped 2.3% to $58.47 per ounce, platinum dipped 0.2% to $1,624.82, and palladium was down 0.5% to $1,270.69.

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