Gold Dips Below $4200 On Fed Hike Bets

(RTTNews) - Gold prices fell sharply on Monday as surging oil prices and elevated bond yields added to worries that the U.S. Federal Reserve will continue raising interest rates next month.

CME Group's FedWatch Tool currently indicates a 64.2 percent chance the Fed will raise borrowing costs by an additional 25 basis points at its late October meeting.

Spot gold tumbled 3.3 percent to $4,146.32 an ounce while U.S. gold futures were down 3.2 percent at $4,180.80.

Rising oil prices added to inflation concerns, with Brent crude prices rallying more than 3 percent to trade near $108 a barrel amid a lack of clarity related to U.S.-Iran peace negotiations.

After publicly rejecting Iran's latest proposal to reopen the Strait of Hormuz and other demands regarding naval blockades and easing economic measures, U.S. President Donald Trump reportedly told aides he expects U.S. bombing to resume after midterm elections.

Trump also said he is still looking "very seriously" at implementing a U.S. ban on diesel exports to combat high prices, which could help lower U.S. diesel prices initially and lift European wholesale cots by about 2 percent.

Iran's Foreign Minister Abbas Araghchi expressed hopes for a diplomatic solution, but warned the country is prepared for war with the United States to resume.

"We are fully prepared for the war to be resumed. We stand firm in the face of any new aggression, even if it comes to a doomsday war," Araghchi told NBC News.

Last week, several Federal Reserve officials flagged more tightening ahead, citing resilient economic growth and a strong labor market.

Cleveland Fed President Beth Hammack said on Friday that "the biggest risk with inflation is the formation of an inflationary mindset and the public has been dealing with above-target inflation for an extended period."

The yield on the 10-year Treasury briefly jumped to 5.22 percent on Friday after a survey showed U.S. consumer sentiment has fallen to a four-month low in September due to rising inflation fears, with year-ahead inflation expectations rising to 4.6 percent in September, the highest reading since June and up from 3.4 percent before the Iran conflict began.

Elsewhere, China has confirmed a two-month extension of the trade truce with the U.S. following a recent summit.

Minutes from the Bank of Japan's July 30 to 31 meeting revealed broad agreement on rising inflation risks, raising speculation the central bank could raise its benchmark rate for a second straight month when the board meets in October.

The U.S. dollar index held near a two-month high ahead of the release of crucial September employment and PCE inflation data due this week.