Gold Prices Fall Ahead Of US Fed Meeting As Rising Oil Prices Stoke Inflation Fears

Gold prices fell on Monday, September 14, as a sharp rise in crude oil prices renewed inflation concerns ahead of the US Federal Reserve's policy meeting this week.

Gold futures on COMEX fell 0.75 per cent to USD 4,341.80 an ounce. Back home, the Multi-Commodity Exchange (MCX) remained closed on account of Ganesh Chaturthi.

Oil prices climbed more than 2 per cent as fresh attacks in West Asia added to concerns over global crude supplies. Brent crude futures rose 2.30 per cent to USD 107 a barrel, while US West Texas Intermediate (WTI) crude futures gained 2.36 per cent to USD 102.40 a barrel.

The rise in oil prices comes after the closure of a key Saudi oil pipeline. Fresh Houthi attacks on Saudi Arabia and Iranian attacks on ships in the Gulf also raised concerns about oil supplies. A planned meeting between Iran and other Gulf countries was postponed, adding to uncertainty over efforts to ease tensions in the region.

Fed Rate Hike Bets Rise

Higher crude oil prices have added to concerns that inflation could remain elevated in the US, making it harder for the US Federal Reserve to ease monetary policy.

Markets are now pricing in an 86.7 per cent probability of a rate hike at the Fed's September 15-16 meeting, according to the Chicago Mercantile Exchange’s (CME) FedWatch Tool. The probability stood at around 67 per cent before last week's US inflation data.

US consumer prices accelerated in August. The Consumer Price Index (CPI) rose 0.4 per cent from the previous month, compared with a 0.1 per cent increase in July, according to the US Bureau of Labor Statistics (BLS). On a year-on-year basis, inflation held steady at 3.4 per cent.

Core CPI, which excludes food and energy prices, rose 0.3 per cent in August, compared with 0.2 per cent in July. It was the biggest monthly increase in core inflation since April.

The BLS also reported a day earlier that producer prices rose 0.4 per cent in August. Producer prices were up 5.4 per cent from a year earlier. The rise suggests that price pressures are still strong at the producer level, which could make it harder for the Fed to bring inflation down further.

Why Gold Prices Are Falling

Gold is generally considered a hedge against inflation, but higher interest rates can weigh on demand for the precious metal as it does not generate interest income.

A rate hike by the Fed would also support US Treasury yields and the dollar, increasing the opportunity cost of holding gold. This could put further pressure on bullion prices in the near term.

The combination of higher oil prices, renewed inflation concerns, and rising expectations of tighter US monetary policy has therefore taken some shine off gold ahead of the Fed's decision.