Gold prices edged higher in Asian trading on Thursday but remained far from key levels as investors grappled with uncertainty surrounding interest rates and the potential inflationary consequences of the U.S.–Israel conflict with Iran.
Stronger-than-expected U.S. producer price inflation data, along with the Federal Reserve’s warning that inflation may rise further, pushed gold lower on Wednesday. The decline drove prices well below the closely watched $5,000-per-ounce threshold and to their lowest level in more than a month.
Spot gold was up 0.2% at $4,833.60 per ounce as of 01:47 ET (05:47 GMT), while gold futures fell 1.3% to $4,834.04 per ounce.
Gold drops below $5,000/oz after U.S. PPI data and Fed signals
Gold slipped out of the $5,000–$5,200 per ounce trading range that had held for nearly a month after the Federal Reserve kept interest rates unchanged on Wednesday and highlighted uncertainty about the inflationary impact of the war involving Iran.
The central bank’s decision followed the release of February’s producer price index data, which came in stronger than economists had expected.
The combination of the PPI figures and the Fed’s comments has increased uncertainty over the trajectory of U.S. interest rates. Markets now largely believe the central bank will have little room to cut rates in the near term. Data from CME FedWatch indicates investors are not pricing in any rate reductions until at least September.
That outlook has weighed on gold prices, offsetting much of the safe-haven demand triggered by the Iran conflict. The precious metal has struggled to gain momentum since hostilities began.
“The market is effectively trading less on geopolitical hedging demand and more on the worries of higher inflation risks delaying Fed cut trajectory,” OCBC analysts wrote in a note.
“While safe-haven flows may still offer intermittent support, they are being offset by the drag from rising real yields.”
Other precious metals also declined on Thursday, extending losses from the previous session. Spot platinum fell 0.6% to $2,012.68 per ounce, while spot silver dropped 0.7% to $74.8325 per ounce.
Both metals, similar to gold, have largely underperformed since late February.
Oil rally weighs on gold despite Iran escalation
Gold has lagged this week even as oil prices continued to climb amid the ongoing U.S.–Israel conflict with Iran, which has shown little sign of easing.
The conflict appeared to intensify on Wednesday after Israel struck the South Pars gas field, the largest gas field in the world, prompting a strong retaliatory response from Iran. Tehran launched attacks on several major energy facilities across the Middle East and continued targeting sites in Israel.
The inflationary consequences of the conflict have been a major concern for financial markets and a key factor weighing on gold prices. Global oil and gas prices have surged as Iran kept the Strait of Hormuz closed, while energy production in parts of the Middle East has slowed due to military action and disruptions to shipping.
These developments have increased concerns about higher inflation and a more hawkish stance from central banks worldwide, conditions that tend to weigh on gold.
“Unless there is a meaningful shift lower in USD, real yields or a clear re-pricing back towards Fed easing, gold may struggle to sustain upside momentum,” OCBC analysts said.
In addition to the Federal Reserve, several major central banks are scheduled to announce interest rate decisions on Thursday. The Bank of Japan has already kept rates unchanged, while the European Central Bank, the Bank of England and the Swiss National Bank are due to announce their policy decisions later in the day.