Gold prices fell on Thursday, influenced by increasing expectations for the Federal Reserve to raise interest rates this year. This decline comes at a time when inflation fears have escalated due to rising oil prices, prompting investors to keep an eye on developments in de-escalation efforts in the Middle East.
The spot price of gold dropped by 1.2% to $4451.47 per ounce by 08:11 GMT. Additionally, US gold futures for April fell by 2.3% to $4448, according to Reuters.
Event Details
Elia Spivak, head of global macroeconomics at Tasty Live, stated, "We are witnessing an acceleration in the idea that this war will lead to inflation, and inflation will necessitate a response from central banks, meaning interest rate hikes."
At the same time, Brent crude futures returned to rise above $100 per barrel, amid fears that ongoing fighting in the Middle East could lead to further disruptions in energy flows. Typically, rising oil prices bolster inflation, making gold an attractive hedge, while high interest rates reduce demand for this non-yielding asset.
Background & Context
Markets anticipate a 37% chance of a US interest rate hike by December of this year, with virtually no expectation of any cuts at this time, according to the FedWatch tool. Prior to the outbreak of the conflict, forecasts indicated a possibility of at least two rate cuts.
In a related context, US President Donald Trump indicated that Iran is seeking an agreement to end nearly 4 weeks of fighting, while the Iranian foreign minister stated that the country is considering a US proposal but does not intend to engage in talks to end the conflict.
Impact & Consequences
Kyle Rodda, senior market analyst at Capital.com, remarked, "In the next 24 to 48 hours, gold prices will only be influenced by headlines related to negotiations. Significant movements are likely to occur at the beginning of next week when it becomes clear whether the US will launch a ground invasion of Iran over the weekend."
The spot price of silver also fell by 2.7% to $69.36 per ounce, while the spot price of platinum declined by 2.3% to $1874.90, and palladium dropped by 2.5% to $1387.53.
Regional Significance
The European Bank for Reconstruction and Development warned that growth forecasts for some emerging markets may be revised down by as much as 0.4 percentage points in the upcoming regional economic forecasts in June if energy prices remain high. This follows a significant rise in oil prices due to US and Israeli strikes on Iran, which effectively closed the vital Strait of Hormuz.
Forecasts suggest that sustained oil prices above $100 per barrel, along with supply chain disruptions, could increase global inflation by more than 1.5 percentage points. Lebanon, Jordan, Iraq, and Egypt are experiencing significant energy trade deficits, making them more vulnerable to the repercussions of rising oil prices.
In conclusion, these developments reflect the impact of regional conflicts on global markets, where gold remains a safe haven for investors amid crises, while economic pressures on developing countries in the region are intensifying.