Sharp drop in gold prices and Fed expectations
While tension in the Strait of Hormuz and rising bond yields weigh on gold, markets are pricing in a new interest rate hike in October.
Gold prices lost nearly 4 percent in value in a single day due to tensions around the Strait of Hormuz and the rise in bond yields. Following these developments, the probability of the Fed raising interest rates in October also gained strength.
Daily Loss in Gold Prices
While diplomatic deadlock in the Strait of Hormuz and US-Iran tension keep supply security concerns alive, gold experienced a drop of nearly 4 percent in value in a single day.
Bond Yields and Non-Interest-Bearing Investment
Rising bond yields and interest rates directly caused gold, a non-interest-bearing investment instrument, to be suppressed and lose value.
Fed's October Expectations
The increase in oil prices and fueling of inflationary pressure in the US economy led financial markets to price in a 69 percent probability of the Fed implementing a 25 basis point rate hike in October.
War Pricing and Future Expectations
Experts stated that there is a war-based pricing on the gold side in the last quarter of the year, emphasizing that prices could recover if a ceasefire agreement comes from the US-Iran line.