Gold prices slid on Monday after a surprise announcement from OPEC+ about a cut to oil output sparked inflation concerns and raised bets of an interest rate hike at the U.S. Federal Reserve’s upcoming May meeting.
Spot gold was down 0.6 percent at $1,956.89 per ounce, as of 0709 GMT, its lowest in nearly a week. U.S. gold futures shed 0.7 percent to $1,971.30.
The opportunity cost of holding non-yielding bullion rises when interest rates are increased to lower inflation.
Gold has fallen “as investors weigh up the lure of gold as a safe-haven asset, versus the potential for higher-for-longer interest rates. Clearly, fears of inflation and higher interest rates has won the argument,” said Matt Simpson, senior market analyst at City Index.
Oil prices surged after Saudi Arabia and other OPEC+ oil producers announced a round of output cuts, a potentially ominous sign for global inflation just days after a slowdown in U.S. price data had boosted market optimism.
U.S. consumer spending rose moderately in February and showed signs of cooling, even though it remained elevated.
“Gold is now vulnerable to a move down to $1,900, given the potential for a higher terminal Fed rate that markets are currently pricing in,” Simpson added.