(May 4): Gold fell, following its second weekly decline, as traders monitored progress towards a US-Iran deal and implications of heightened Middle East tensions on inflation and the Federal Reserve’s interest-rate path.
Bullion declined as much as 1.9% in Monday trading while oil climbed on concerns that regional tensions could threaten a fragile ceasefire. A fresh plan announced by US President Donald Trump to help vessels through the Strait of Hormuz has left shipping executives perplexed, as attacks continued and traffic remains at a near standstill.
Surging energy prices and a lack of availability of key inputs such as fertiliser will likely raise inflationary risks, increasing the chance of a Fed rate hike, according to Bart Melek, global head of commodity strategy at TD Securities.
“We may start to see these forces hit food and continue to keep fuel prices elevated, suggesting that there is a risk that these shocks will feed through into core inflation,” Melek said in an interview. “If this oil problem continues, the Fed’s next move may well be a hike.”
Melek said such a situation would support the US dollar, keep rates high and drive down gold prices.
See also: Standstill in India gold imports drags on, threatens supply
Looking ahead, traders will focus on this week’s announcement of the US Treasury Department’s borrowing plans for the next three months, an array of Federal Reserve speakers and a loaded calendar of economic releases, crowned by monthly employment data. The information should give clues on the trajectory of rates and the US fiscal deficit.
Spot gold dropped 0.8% to US$4,577.85 an ounce as of 10.42am in New York. Silver fell 1.2%, while platinum and palladium also declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little changed.
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