Gold loses over 2% on hot inflation concerns in the US

Gold prices fell more than 2% in European trading on Friday, deepening losses for the fourth consecutive session and hitting their lowest level in a week, heading for the biggest weekly decline since March, pressured by rising dollar and oil prices across global markets, alongside mounting fears of persistent inflation in the United States.

Escalating inflationary pressures on Federal Reserve policymakers have reinforced expectations for at least one additional US interest rate hike this year, pending further economic data and Fed commentary.

Price Overview

• Gold prices today: Gold prices dropped 2.3% to $4,546.15 per ounce, the lowest level in a week, from an opening level of $4,652.09, while recording an intraday high of $4,665.35.

• At Thursday’s settlement, gold prices lost 0.8%, marking the third consecutive daily decline, as yields on US 10-year Treasury bonds climbed to their highest level in a year.

Weekly Performance

So far this week, which officially ends with today’s settlement, gold prices are down more than 3.5%, heading toward a third weekly loss within a month and the largest weekly decline since March.

US Dollar

The dollar index rose more than 0.4% on Friday, extending gains for the fifth straight session and reaching its highest level in five weeks, reflecting continued broad strength in the US currency against a basket of global currencies.

As is well known, a stronger US dollar makes dollar-denominated gold bullion less attractive for holders of other currencies.

The dollar also received additional support from rising US Treasury yields, as investors increased bets that the Federal Reserve will raise interest rates at least once more this year.

Global Oil Prices

Global oil prices rose more than 5% this week due to stalled talks between the United States and Iran and growing fears of renewed conflict, keeping the vital Strait of Hormuz largely closed.

US Interest Rates

• Data released this week in the United States showed consumer prices in April rising at the fastest pace in three years, while producer prices recorded their sharpest increase in four years, highlighting renewed inflationary pressures on Federal Reserve policymakers.

• According to the CME Group’s FedWatch tool, markets are currently pricing in a 45% probability of a Federal Reserve rate hike in December, up from just over 16% a week ago.

• This week, markets also increased pricing for keeping US interest rates unchanged in June from 93% to 99%, while pricing for a 25 basis point rate cut dropped from 7% to 1%.

• To reassess these expectations, investors continue to closely monitor additional US economic data and comments from Federal Reserve officials.

Gold Outlook

KCM Trade chief market analyst Tim Waterer said gold is currently under pressure from all sides, as rising oil prices have pushed inflation back into focus, driving yields and the dollar higher, leaving the yellow metal a victim of renewed market skepticism over rate cuts.

Peter Grant, vice president and senior metals strategist at Zaner Metals, said inflation remains elevated, reinforcing expectations that interest rates will stay higher for longer, which continues to pressure gold this week.

SPDR Gold Trust

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Tuesday, leaving total holdings steady at 1,039.99 metric tons, the highest level since April 28.