Central banks in the US, Canada and Japan struck hawkish tones this week, wary that rising energy prices could spark a fresh wave of inflation
Gold prices fell to their lowest level in more than a month on Thursday, pressured by a stronger dollar and rising Treasury yields, while a hawkish US Federal Reserve further dampened bullion’s appeal.
Spot gold was down 2.7 per cent to $4,687.19 per ounce as of 1125 GMT, after falling to $4,665.69, its lowest since ​February 6, earlier in the session.
US gold futures for April delivery fell 4.3 per cent to $4,688.20.
“Gold fell sharply for a second day after breaking key support below $5,000, amid a stronger dollar and a more hawkish tone from Fed Chair Jerome Powell following the latest FOMC meeting,” said Ole Hansen, head of commodity strategy, Saxo Bank.
The dollar and benchmark 10-year US Treasury yields rose, making gold more expensive for holders of other currencies and diminishing the appeal of the non-yielding metal.
Central banks in the US, Canada and Japan struck hawkish tones this week, wary that rising energy prices could spark a fresh wave of inflation.
The European Central Bank is widely expected to keep interest rates on hold on Thursday, but will make clear it stands ready to raise them if the Iran war fuels a lasting surge in euro zone inflation.
While gold is traditionally seen as a hedge against inflation and uncertainty, high interest rates curb its appeal by raising the cost of holding bullion and boosting returns on yield-bearing assets.
Oil prices jumped above $115 per barrel after Iran attacked energy facilities across the Middle East following Israel’s strike on its South Pars gas field, a major escalation in the war.
Rising oil prices can feed into inflation as businesses pass on higher costs, which could encourage the Fed to keep rates higher for longer.
“Geopolitical risks are going to linger and be a very strong catalyst for gold prices, so despite short-term consolidation, I could easily see gold at $6,000 by the end of the year,” said Nitesh Shah, commodity strategist at WisdomTree.
Spot silver fell 6.3 per cent to $70.65 per ounce after having touched $69.95, its lowest since February 6. Spot platinum fell 4.4 per cent to $1,934.90, and palladium lost 1.9 per cent to $1,448.05.
