Gold Continues Decline Amid Rising Tensions... Stocks Fall

Gold prices fell for a second straight session on Monday, as renewed hostilities in the Middle East exacerbated inflationary concerns and reinforced expectations that the US Federal Reserve will keep interest rates high for longer.

Spot gold fell 1.2% to $4,072.49 per ounce, while US gold futures for August delivery declined 0.8% to $4,081.30. US and Iranian forces exchanged heavy missile and drone attacks, with Tehran targeting US facilities in Gulf states and threatening to close the Strait of Hormuz. Oil prices rose about 3% on the news.

Ole Hansen, analyst at Saxo Bank, said: "The renewed hostilities in the Gulf have rekindled concerns about inflation and the risk of monetary policy tightening by the Federal Reserve, creating additional headwinds (for gold) through higher bond yields and a stronger dollar."

Higher interest rates increase the opportunity cost of holding gold, which yields no return. Traders see a 71% probability of a US Federal Reserve rate hike in September, up from about 63% last week.

This week sees the release of several US economic data, including the June consumer price index and producer price index, retail sales figures, and weekly jobless claims.

Markets are also awaiting the first appearance of Kevin Warsh before Congress as Chairman of the Federal Reserve on Tuesday and Wednesday, for further indications on the economy, inflation, and monetary policy goals.

Data released on Friday showed that gold speculators on the COMEX cut their net long positions by 1,964 contracts to 114,854 contracts in the week ended July 7, after three consecutive weeks of increases.

Among other precious metals, spot silver fell 1.6% to $58.8795 per ounce, platinum declined 0.3% to $1,622.72, and palladium dropped 0.7% to $1,267.46.

Stocks fall

In stock markets, global shares fell and government bond yields rose on Monday, amid investor concerns over a new escalation in the Middle East conflict and impact on valuations of AI stocks. The MSCI main global stock index fell 0.38%. Europe's STOXX 600 fell 0.12%, with tech stocks down 1.1%. Nasdaq futures fell 1.20%, and S&P 500 futures fell 0.40%. Japan's Nikkei index fell 1.9%.

South Korea's KOSPI index, which had been booming, fell 7.6%, after losing nearly 8% last week, due to pressure on leveraged bets on semiconductor stocks. The market has emerged as a major global indicator of chip sector sentiment, and further losses could spill over into broader sectors.

The AI sector returned to the spotlight after SK Hynix, the South Korean memory chip maker, announced. Shares of SK Hynix, listed on the US Nasdaq, jumped nearly 14% on its debut Friday.

Bank of America said: "All eyes are on the AI capital expenditure path: growing concerns about the sustainability of the AI capex boom appear to have been the main catalyst for the momentum reversal," adding that the bank still expects the momentum reversal to continue.

For equity investors, much now hinges on the upcoming earnings season. Major banks begin reporting earnings on Tuesday, while Netflix and General Electric also report.

They added: "Although AI market volatility may remain high over the next quarter, we maintain our overweight recommendation on global and US IT sectors. We couple these growth investments with overweight positions in cyclical regions/sectors, including Japan, financials, and materials."

The sharp rise in oil prices pushed two-year US Treasury yields to their highest since February 2025 at 4.2393%, while federal funds futures indicated a monetary policy tightening of 39 basis points by year-end.

In currencies, the dollar index rose 0.05% to 101.13, and the euro rose 0.05% to $1.1394. The dollar gained 0.24% against the yen to 162.12, recovering some of its losses from Friday when Japanese Finance Minister Satsuki Katayama floated an idea to encourage the $1.8 trillion Government Pension Investment Fund and pension funds to repatriate some of their money.