Gold Pares Losses as Iran, Waller Remarks Worsen Rate Outlook

Gold pared losses after dropping below $4,000 an ounce on Monday, as rising tensions in the Middle East and remarks by a US monetary policymaker raised expectations of interest-rate hikes to curb inflation.

Bullion gained as much as 0.8% and was trading near $4,020 an ounce, after losing 2.9% on Monday. President Donald Trump reinstated a blockade of Iran and demanded a 20% on other cargoes transiting the Strait of Hormuz, as the two countries resumed fighting. Oil and European natural gas prices , fanning concerns about tighter monetary policy, which is typically a headwind for non-yielding bullion.

Federal Reserve Governor Christopher Waller — until recently one of the central bank’s most dovish officials — said policymakers may need to in the near term if underlying inflation continued to signal broad price pressures. Swap traders are now pricing in more than a 40% likelihood that the Fed will hike interest rates in its next meeting at the end of July, and have fully priced in at least one hike by the end of the year.

Later on Tuesday, traders will be watching for both US consumer price figures for June, and Kevin Warsh ’s first appearance before Congress as Fed chairman for signals about the central bank’s rate outlook.

The “near-term environment for gold remains challenging if oil prices remain elevated and yields continue to rise,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp., citing the data and testimony.

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Gold has extended declines this month after losing 14% in the second quarter, its worst showing since 2013. The retreat has been driven by rising expectations that the Fed could be prompted to tighten policy, with the US dollar and Treasury yields gaining ground. Bullion-backed exchange-traded funds, a key way for investors to gain exposure to gold, have also seen consistent net outflows in recent months.

Despite the macro headwinds, there’s that investors are putting on large-scale short positions in anticipation of further declines in bullion. Activity has been muted in Shanghai, the Middle East, and South Asia as “investors and traders remain reluctant to commit in any size while the international tensions revolving around the Middle East continue to fluctuate,” according to Rhona O’Connell , head of market analysis at StoneX Financial Ltd.

“We continue to expect these metals to remain under pressure unless and until there is a substantial improvement in international relations,” she wrote in a note.

Spot gold recovered 0.5% to $4,020.58 an ounce at 10:19 a.m. in London. Silver rose 0.8% to trade at $58.12 an ounce. Platinum and palladium both gained. The , a gauge of the US currency, was 0.2% lower after rising 0.3% in the previous session.