Gold prices fell to a 3-week low on Tuesday, as oil prices remained high, raising concerns about inflation, while investors are awaiting key decisions from the central bank this week to assess whether the Middle East conflict will change interest rate outlook.
Spot gold prices fell 1.1% to 4.627.49 USD/ounce at 4:10 PM Vietnam time, the lowest level since July 4. US gold futures for June delivery also fell 1.1% to 4,642.90 USD/ounce.
A US official said President Donald Trump was not satisfied with Iran's latest proposal to resolve the two-month conflict, thereby reducing expectations of an agreement to end the war that has disrupted energy supplies, fueled inflation and killed thousands of people.
Mr. Edward Meir - Analyst at Marex commented: "Geopolitical information is still the main factor dominating gold prices. If an agreement between the US and Iran is reached, or at least a temporary agreement, the USD may weaken and gold prices are likely to break through and rise.
The USD appreciated, while oil prices exceeded the threshold of 111 USD/barrel due to the Hormuz Strait - a strategic transportation route that is still largely closed.
High oil prices can boost inflation by increasing transportation and production costs, thereby increasing the possibility of interest rates continuing to rise. Although gold is considered an inflation hedging tool, high interest rates make profitable assets more attractive, thereby reducing the attractiveness of this precious metal.
The Bank of Japan (BOJ) kept interest rates unchanged in Tuesday's session, but 3/9 board members proposed increasing borrowing costs, showing policymakers' concerns about inflationary pressure from the Middle East conflict.
The US Federal Reserve (Fed) is also expected to keep interest rates unchanged after a two-day meeting ending on Wednesday.
Investors will continue to monitor other monetary policy decisions this week, including from the European Central Bank (ECB), the Bank of England (BoE) and the Bank of Canada (BoC).
On the precious metals market, spot silver prices fell 2.9% to 73.28 USD/ounce, platinum fell 1.6% to 1,951.33 USD/ounce and palladium fell 1.6% to 1,453.38 USD/ounce.
