Oil Spike Drives Gold to One-Month Low

Spot gold fell nearly 2% to US$4,250 per ounce on Monday. This marks the lowest level since early August. US gold futures dropped more than 2% to below US$4,300. The decline pushes gold back into negative territory for the year.

The sell-off follows a sharp rise in crude oil prices. Benchmark crude futures climbed to US$108 per barrel. This surge boosts expectations for higher interest rates. Traders now see an 89% probability of a Federal Reserve hike this week.

Crude oil surge fuels inflation fears

Saudi Arabia closed its East-West pipeline on Monday. This route bypasses the Strait of Hormuz. The closure occurred amid the US-Iran conflict. Higher energy costs are feeding into broader inflation concerns.

Jim Wyckoff of American Gold Exchange noted the link to inflation. He stated that high crude prices drive inflation expectations. This forces central banks to tighten monetary policy. Higher rates reduce the appeal of non-yielding assets like gold.

Fed rate hike expectations shift

Expectations for a Federal Reserve rate hike have intensified. Friday’s consumer price index showed core inflation rose 0.3% in August. Most economists now expect a rate increase on Wednesday. They also anticipate at least one additional hike by March.

The consensus changed after the CPI release. Previously, economists expected rates to remain unchanged. CME FedWatch Tool data supports the new outlook. The Bank of Japan is also expected to raise rates on Friday.

Long-term gold outlook remains positive

Gold prices fell from US$5,300 in March to US$4,000 in July. The metal recovered in August due to US Treasury buybacks. Monday’s decline reverses that recent gain. Investors continue to view bullion as a portfolio hedge.

Major banks maintain constructive long-term targets. Goldman Sachs targets US$4,900 per ounce. UBS Group sees gold reaching US$4,600 by year-end. GN auto markets/commodities reports that these forecasts hold despite near-term pressure.