THE gold extended losses after its biggest daily drop in nearly two years as investors focused on an easing of tensions in the Middle East and signs that the U.S. Federal Reserve will keep interest rates higher for longer.
After climbing to a record high earlier in the month, the precious metal fell below $2,300 an ounce. The bullion fell 2.7% on Monday as concerns that the conflict between Israel and Iran would escalate eased. Tehran downplayed the impact and significance of Tel Aviv’s recent strike, saying Israel had received the “necessary response at this stage”.
“There is likely to have been some tactical short selling given the recent rally in gold prices,” Richard Grace, senior currency analyst and international economist at ITC Markets, said in a note.
Gold is still up about 15% since mid-February, with gains supported by geopolitical risks, central bank purchases and demand from Chinese consumers. The precious metal has risen despite advances in the dollar and government bond yields on signs the Fed will delay its long-awaited pivot.
Traders are now turning their attention to US economic data due this week, including the Fed’s preferred measure of inflation, which may provide more clues on the path of monetary policy. Policymakers have become increasingly hawkish on the outlook for interest rates in recent weeks following a string of strong inflation reports.
With markets continuing to temper expectations of monetary easing this year, a prolonged higher interest rate environment could weigh on non-yielding gold.
Spot gold was down 1.2 percent at $2,298.67 an ounce earlier in London. The Bloomberg Dollar Spot Index was flat. Silver fell, after falling 5.2% in the previous session. Palladium and platinum also fell.
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