Gold Pressured by Rising Inflation Risks

Gold edged above $5,080 per ounce on Friday, but still on track for a back-to-back weekly loss, as surging oil prices fueled inflation concerns. President Donald Trump and Iran’s new supreme leader Mojtaba Khamenei issued defiant remarks, with Trump stressing that stopping Iran from acquiring nuclear weapons takes priority over oil price concerns, while Khamenei vowed to keep the strategic Strait of Hormuz closed and warned that Iran could open additional fronts if US and Israeli attacks persist. The tensions pushed energy prices higher, stoking inflation worries and dampening expectations of Federal Reserve interest rate cuts. Markets see no chance of a reduction at next week’s meeting and only about a 70% probability of a cut later this year. Elsewhere, gold discounts in India hit a nearly decade-low this week as weak demand and avoidance of import duties weighed, while China extended gold buying into its 16th consecutive month.

Gold prices stabilized above $5,180 per ounce on Thursday as investors balanced safe-haven demand against the pressures of a strong dollar and rising bond yields. The escalating conflict between the United States and Iran has pushed oil prices above 100 dollars per barrel which typically increases the appeal of bullion as a hedge against inflation. However these gains were limited by liquidations from margin calls on falling global stocks and the continued strength of the dollar index which makes gold more expensive for international buyers. While February consumer price data showed a 0.3% rise that matched expectations, the jump in ten year Treasury yields to a five week high has dampened hopes for imminent interest rate cuts by the Federal Reserve. Central banks continue to increase their physical holdings as a buffer against geopolitical instability while traders monitor upcoming spending reports for further policy cues.

Gold traded around $5,180 per ounce on Thursday, holding losses from the previous session as surging oil prices heightened inflationary risks and reduced the likelihood of central bank interest rate cuts. Oil prices climbed for a second day as the prospect of a protracted Iran war overshadowed a coordinated release of oil reserves by major economies. Markets also viewed the emergency oil release as insufficient even after the IEA agreed to its largest-ever release of 400 million barrels of oil. Gold came under pressure as well from a rallying dollar and surging Treasury yields as forward-looking inflation concerns dimmed prospects for a Fed easing, with forecasts currently pointing to only one rate reduction later this year. Meanwhile, data on Wednesday showed US core inflation remained tame at the start of the year. The European Union also warned that its inflation could exceed 3% this year.