Gold is on track for a modest weekly decline, primarily driven by a war-induced surge in US inflation that has intensified expectations for higher interest rates. The precious metal, which offers no interest and is priced in the US currency, has faced headwinds from a strengthening dollar and jumping Treasury yields.
Bullion experienced a fall of as much as 1%, nearing $4,607 an ounce, and has seen an approximate 2% decrease since last Friday. This recent performance contributes to a more significant downturn, with gold now down more than 12% since the onset of the conflict that has reshaped global economic dynamics. As of 12:44 p.m. in Singapore, spot gold was trading 1% lower at $4,605.16 an ounce.
Inflationary Pressures Intensify Rate Hike Outlook
Recent economic data from the United States has underscored the persistent inflationary environment. US wholesale inflation accelerated in April to its fastest pace since 2022, while the consumer price index recorded its largest increase since 2023. These figures have fueled market speculation that central banks, particularly the Federal Reserve, will be compelled to maintain or even increase interest rates to curb rising prices.
The macroeconomic environment created by these inflation concerns presents a challenging landscape for gold. A stronger dollar makes gold more expensive for holders of other currencies, dampening demand. Concurrently, rising 10-year Treasury yields offer investors a more attractive return on safe-haven assets, drawing capital away from non-yielding gold.
Geopolitical Tensions and Energy Crisis Prolong Inflation Concerns
The ongoing geopolitical landscape continues to play a critical role in sustaining inflationary pressures. The Strait of Hormuz, a vital conduit for global energy flows, remains effectively closed, with efforts to resolve the Iran war stalled. This prolonged uncertainty has exacerbated the energy crisis, keeping inflation concerns elevated across global markets.
Oil prices reflect this persistent tension, with West Texas Intermediate (WTI) edging toward $102 a barrel on Friday, contributing to a weekly gain for the commodity. The sustained high cost of energy feeds directly into broader inflation, reinforcing the cycle of rate-hike expectations that weigh on gold.
Analyst Perspectives on Gold’s Trajectory
Analysts at ANZ Group Holdings Ltd., Daniel Hynes and Soni Kumari, noted in a recent report that “Inflation expectations, higher yields and a stronger dollar are likely to keep gold under pressure in the near term.” Reflecting this cautious outlook, ANZ has deferred its target of $6,000 an ounce for gold to mid-2027, a significant shift from their earlier projection of early next year.
Despite gold’s recent lackluster performance, some market participants see potential for renewed interest. Ryan Mckay, a senior commodity strategist at TD Securities, indicated that hedge funds might be increasing their gold allocations in the coming days. Mckay stated, “Our pricing scenario continues to point toward CTA length accumulation under essentially all-price path simulation,” referring to commodity trading advisors.
Silver’s Divergent Path and Global Demand Shifts
While gold faces headwinds, silver has shown a more robust performance, rising around 11% in May. This rally has been attributed to renewed speculative interest in industrial metals. The gold-silver ratio has recently declined, a trend some traders interpret as an indication that the white metal has become relatively undervalued. However, ANZ analysts caution that silver’s strong price rally appears vulnerable in the near term, though they expect a persistent market deficit and structural demand to support prices over the medium to longer term.
In other precious metals, silver declined 2.9% to $81.09, while platinum and palladium also experienced dips. The Bloomberg Dollar Spot Index, a measure of the dollar’s strength against a basket of major currencies, was 0.2% higher and recorded a 0.9% gain for the week, further illustrating the currency’s impact on dollar-denominated commodities.
Adding to the demand-side pressures, India, the world’s second-biggest bullion market, has tightened rules for importing gold. This move comes days after the country hiked import duties, part of its broader efforts to defend the rupee, and is expected to weigh on demand sentiment in a crucial market for the precious metal.
