Gold prices declined on Wednesday as strong U.S. inflation data reduced expectations for imminent interest rate cuts. According to reports from The Hindu BusinessLine, spot gold was down 0.4% to $4,694.59 per ounce at 0946 GMT, retreating from a three-week high reached in the previous session. U.S. gold futures for June delivery gained 0.3% to $4,702.40, while the dollar hit a more than one-week high, making dollar-priced bullion expensive for holders of other currencies. As per The Economic Times, gold and silver prices fell due to strong U.S. inflation data, rising dollar strength and reduced expectations of interest rate cuts. A stronger US dollar contributed to the decline, as when the dollar rises, gold and silver become expensive for buyers using other currencies, reducing demand and pressuring prices.
U.S. consumer inflation rose further in April, with the annual rate posting its largest gain in three years at 3.8% year-on-year, coming in above the 3.7% that economists had pencilled in, as reported by The Hindu BusinessLine. On a monthly basis, overall prices rose 0.6% while core inflation — which excludes food and energy — climbed 0.4%. The annual core reading held at 2.8%, remaining comfortably above the Federal Reserve's long-standing 2% goal. Higher oil prices triggered by the U.S.-Iranian war pushed costs up, with the data released on Tuesday showing the significant inflationary pressure. UBS analyst Giovanni Staunovo noted that "yesterday's higher inflation data is expected to keep the Federal Reserve on hold longer, but still with easing bias," suggesting gold may trend sideways in the short term. According to The Economic Times, earlier expectations of rate cuts have mostly disappeared, with traders now seeing a 29% chance of a hike in December according to CME Group's FedWatch tool.
Traders have largely priced out a U.S. rate cut this year and now see a 29% chance of a hike in December, as reported by The Hindu BusinessLine. The fragile month-long truce between the United States and Iran came under serious doubt on Tuesday after President Trump described it as being on "massive life support," following Tehran's rejection of Washington's proposed peace terms. Trump, who had earlier hinted the ceasefire could lapse by Wednesday, left the door open to restarting military action. News reports suggesting the President was actively reconsidering a return to combat operations further unnerved markets, erasing much of the goodwill built over the previous week when equities had rallied on optimism about a deal. Gold has fallen more than 10% since the Iran war began late February, as elevated oil prices fuelled concerns about inflation and higher-for-longer interest rates.
Global markets closed mixed as U.S. inflation surprised to the upside, oil surged above $100 on Middle East tensions, and geopolitical uncertainty weighed on equities in Europe and the U.S. Bond markets reacted swiftly, pushing the yield on the 10-year Treasury up to 4.43%, approaching this year's peak of 4.48%. According to The Hindu BusinessLine, Wall Street ended Tuesday on an uneven note, with markets clawing back from much steeper declines earlier in the session. While the Dow scraped together a narrow gain, both the S&P 500 and Nasdaq finished in negative territory after briefly falling over 2%. Frankfurt suffered its sharpest single-day drop in weeks, pulling back to a two-week low as dimming hopes for a Middle East resolution and climbing energy prices weighed heavily on sentiment. Key implications for India include rising import costs, currency pressure, and delayed Fed rate cuts, with analysts suggesting that precious metals may rise if economic growth slows, inflation stays high or geopolitical risks increase.
