Gold prices drop as oil surge and stronger dollar fuel inflation fears

Gold prices declined on Monday as worries over rising fuel costs stoked inflation fears linked to the conflict between the United States and Iran.

Spot gold dropped 3.3 percent, hitting a more than seven-week low of $4,146.51 per ounce, the weakest level since August 5. US gold futures also slipped 3.3 percent, to $4,178.40.

The fall came as oil prices climbed, the US dollar strengthened, and Treasury yields rose, all of which added pressure on the precious metal.

Gold is typically viewed as a safeguard against inflation, but higher interest rates reduce its attractiveness since it offers no yield, prompting investors to favour interest-bearing assets instead.

Sherif Othman, chief executive of Maryland-based Poise Investment Advisors, said the shift would mainly affect investors who had turned to gold rather than ordinary consumers, noting that rising Treasury yields tend to draw investors away from the metal because it does not generate interest.

The US Federal Reserve raised its benchmark interest rate by a quarter of a percentage point earlier this month and signalled that at least one more increase could follow in the coming months.