Gold declines as oil prices rise and rate hike expectations increase

Gold prices fell 1% on Thursday after rising oil prices fueled inflation concerns, strengthening bets on higher US interest rates and pushing Treasury yields and the dollar higher, adding further pressure on the precious metal.

Spot gold declined 1% to $4,500.07 per ounce. The yellow metal had risen more than 1% during Wednesday’s US trading session after hitting its lowest level since March 30.

US gold futures for June delivery also fell 0.7% to $4,502.90 per ounce.

Oil prices rose more than 2% following a Reuters report stating that Iran’s Supreme Leader issued a directive prohibiting the transfer of highly enriched uranium outside the country.

Giovanni Staunovo, analyst at UBS, said: “Fundamentally, everything still revolves around negotiations between Iran and the United States, and within that context we have seen some uncertainty regarding the possibility of reaching an agreement. However, oil prices are now placing increasing pressure on gold.”

The report added that directives from Ayatollah Mojtaba Khamenei could further frustrate US President Donald Trump and complicate talks aimed at ending the US-Israeli war against Iran.

Gold has lost more than 15% of its value since the outbreak of the war in late February, which disrupted shipping through the Strait of Hormuz, pushing energy prices sharply higher and intensifying inflation concerns.

The US dollar strengthened, making dollar-denominated gold more expensive for holders of other currencies, while US 10-year Treasury yields resumed their climb, increasing the opportunity cost of holding non-yielding bullion.

Staunovo added: “Higher oil prices, which push inflation upward, place pressure on central banks to keep interest rates elevated or even raise them further. Therefore, this remains a negative factor for gold in the near term.”

Although gold is traditionally viewed as a hedge against inflation, it tends to struggle during periods of rising interest rates.

According to the CME Group FedWatch tool, traders are now pricing in a 58% probability that the Federal Reserve will raise interest rates by at least 25 basis points this year, compared with a 48% probability just one day earlier.