Gold Heads for Sharp Weekly Drop

Gold rose back above $4,700 per ounce on Friday following a steep two-day selloff, but was still on track for a sharp weekly decline as surging energy prices driven by the Middle East conflict stoked inflation concerns and dampened expectations for interest rate cuts. Higher energy prices and intensifying inflationary pressures prompted investors to rotate into the dollar and Treasuries at the expense of safe-haven metals. The energy-driven shock forced traders to reassess the policy outlook after a wave of hawkish signals from major central banks. The Fed kept rates unchanged, signaling no rate cuts until inflation clearly eases. At the same time, the ECB, BOJ, and BOE also left rates steady but struck more hawkish tones, indicating a bias toward tighter policy. Markets have now pushed back expectations for Fed rate cuts to 2027 and are pricing in two rate hikes each from the ECB and BOE this year, further weighing on gold’s appeal.

Gold crashed over 5% to $4,560 per ounce on Thursday, its seventh straight session of declines and the lowest since early January, as investors recalibrated rate expectations following a wave of hawkish central bank decisions and soaring energy prices amid the escalating Iran war. The US Federal Reserve held rates steady, citing the uncertain economic fallout from the Iran conflict and persistent inflation risks. Policymakers signaled no rate cuts until inflation clearly eases, with Fed Chair Jerome Powell acknowledging a hike remains possible, though unlikely for now. Meanwhile, the European Central Bank, Bank of Japan, and Bank of England all maintained rates but adopted more hawkish tones, signaling tighter monetary policy ahead. Markets now delay Fed easing expectations to 2027 and price in two ECB and BoE rate hikes this year, further dimming gold’s appeal.

Gold dropped to around $4,710 per ounce on Thursday, declining for the seventh session to hit a nearly six-week low, as the Federal Reserve’s hawkish outlook weighed on its non-yielding appeal. The Fed kept interest rates unchanged, as expected, saying the uncertain economic impact of the conflict involving Iran and highlighting persistent upside risks to inflation. Policymakers signaled that rate cuts will remain on hold until there is clearer evidence that price pressures are easing, although they still project one reduction this year. Meanwhile, geopolitical tensions escalated after Iran launched missile strikes on a site in Qatar housing the world’s largest LNG facility, following an Israeli attack on Iran’s South Pars gas field. While this supported safe-haven demand, it also pushed oil prices higher. Gold remains up about 12% year-to-date, but momentum has weakened as rate cut expectations fade and some investors sell to meet margin calls.