Gold retreats on profit-taking as oil surge fuels rate hike bets
Precious metals declined in early Indian trade as a sharp rise in crude oil prices driven by Middle East tensions pushed traders to price in a greater likelihood of Federal Reserve rate hikes.
Gold and silver prices fell on the Multi Commodity Exchange of India (MCX) on Thursday morning as traders cashed in on a strong rally from the previous session. August gold futures dropped 0.32% to ₹1,45,207 per 10 grams around 9:05 am, while September silver contracts slipped 0.23% to ₹2,26,474 per kilogram. The retreat followed a volatile session where gold jumped 2% and silver gained nearly 1.5%.
The downward momentum was consistent across global markets. US gold futures traded down roughly half a per cent near $4,115 an ounce, stepping back after hitting a two-week high of $4,171 in the prior session. The profit-taking in precious metals occurred as capital rotated toward energy markets, where supply disruption fears have become the dominant market force.
Brent crude for September delivery surged more than 2%, pushing past $96 per barrel to reach its highest level in over six weeks. The spike was directly tied to an escalation in Middle East tensions. The US military launched fresh airstrikes targeting Iranian military, government and infrastructure sites, while Iran-backed Houthi forces simultaneously targeted commercial oil tankers in the Red Sea. US President Donald Trump stated that Iran is not yet ready to negotiate a deal, signaling a prolonged period of instability.
This geopolitical premium in crude oil is weighing heavily on precious metals through the currency and interest rate channels. As energy costs rise, inflation expectations harden, pushing the US dollar index up to 101.13 before it eased slightly to hover near 101. A stronger dollar makes dollar-denominated commodities like gold more expensive for foreign buyers, capping price advances.
More importantly, the oil-driven inflationary pressure is reshaping expectations for US monetary policy. While the Federal Reserve is widely expected to maintain its benchmark rate at the 29 July meeting, the prospect of elevated energy costs is keeping rate hike bets alive.
For institutional investors, the current pricing dynamic highlights a classic macroeconomic tension. Geopolitical risks typically drive safe-haven demand for bullion, but when those same risks manifest as supply shocks in the energy market, the resulting anticipation of tighter monetary policy ultimately drags gold lower. Until the Middle East conflict shows clear signs of de-escalation, markets are likely to remain highly sensitive to any shifts in Fed rhetoric regarding inflation and interest rates.
