Oil and gold prices climbed on Wednesday as geopolitical tensions intensified ahead of key U.S. inflation data, while investors assessed the potential impact on Federal Reserve interest rate policy.
U.S. crude rose 0.61% to $83.71 a barrel, while Brent crude gained 0.62% to $89.46, extending its rally to a sixth consecutive session. Both benchmarks settled more than $1 higher on Tuesday, reaching their highest levels since July 31.
Spot gold rose 0.77% to $4,400.44 an ounce, while silver gained 1%. Investors moved toward precious metals as geopolitical uncertainty increased across several regions.
Middle East Tensions Keep Oil Prices Elevated
Markets remained concerned about the continuing conflict involving Iran. The United States and Yemen’s Iran-aligned Houthis reported separate attacks on shipping, while Iran maintained its position over the Strait of Hormuz.
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An attack by Houthis on an Egyptian-owned ship killed four crew members, according to Yemen’s transport ministry. The U.S. military also said it struck a container ship attempting to sail toward an Iranian port.
The deaths would represent the first fatalities from a Houthi attack on shipping since the Iran war began on February 28.
The continuing attacks and lack of progress in negotiations have kept the outlook for oil prices tilted higher. Market participants remain concerned that prolonged disruption around the Strait of Hormuz could further affect energy supplies and shipping.
North Korea Adds to Geopolitical Risks
Markets were also unsettled by a North Korean ballistic missile launch off the country’s east coast, coming days before major joint military exercises between South Korea and the United States.
Taiwan also condemned planned naval drills involving China and an Indonesian warship off Taiwan’s eastern coast.
The combination of tensions in the Middle East and Asia has added to uncertainty across financial markets, with investors becoming more cautious ahead of the U.S. inflation report.
CPI Data in Focus
The U.S. consumer price index report is expected to provide important clues about the Federal Reserve’s next policy decision.
Consumer prices are expected to rise 0.1% in July after falling 0.4% in June, while annual CPI inflation is forecast to slow to 3.4% from 3.5%.
Markets are currently pricing roughly an even chance of a Federal Reserve rate hike next month.
Boston Fed President Susan Collins has said she would support a September rate increase if inflation remains high.
The inflation data could therefore influence expectations for U.S. interest rates and, in turn, Treasury yields, the dollar and equity markets.
Asian Markets Mixed
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8%, while Japan’s Nikkei gained 0.8% after reopening following a holiday.
South Korea’s Kospi jumped 4%, driven by gains in technology shares.
The yen weakened 0.08% to 159.38 per dollar, remaining well below last week’s high of 155.20 after several suspected rounds of currency intervention by Japan and the United States.
Japanese bond yields also rose as markets increasingly priced in the possibility of an early interest rate hike. The five-year Japanese government bond yield reached a record 2.12%, while the two-year yield reached a 31-year high.
Analysis: Markets Face a Three-Way Risk
The market outlook is increasingly shaped by three interconnected risks: geopolitical escalation, higher energy prices and persistent inflation.
Oil’s extended rise could eventually feed into consumer prices, making the Federal Reserve’s policy decision more difficult. At the same time, a stronger-than-expected CPI reading could increase expectations of higher interest rates, potentially putting further pressure on bonds and risk-sensitive assets.
For now, investors remain cautious. The absence of progress in talks involving Iran, continued attacks on shipping and fresh military activity in Asia are keeping geopolitical risks elevated just as markets await crucial evidence on the direction of U.S. monetary policy.
With information from Reuters.
