Gold prices fell on Friday, heading for a second consecutive weekly decline as traders ramped up bets on Federal Reserve monetary tightening following Governor Christopher Waller's comments. According to The Economic Times, Waller warned that the Iran war's energy shock could fuel inflation, stating he supports making clear the central bank's next interest-rate move is just as likely to be an increase as a cut. This policy stance has fundamentally altered market expectations, with traders now pricing in a 58% probability of at least one 25-basis-point hike by the Federal Reserve before December, according to CME Group's FedWatch tool. Waller indicated his current position is to be patient in holding rates until the war's impact is clearer, but warned Friday that he wouldn't rule out a future hike if inflation doesn't start to slow soon. As reported by StoneX analyst Rhona O'Connell, market participants are fixated on the Strait of Hormuz and disrupted supply chains, leading to inflationary fears and concerns about potential interest rate rises.
Higher rates typically weigh on gold as it pays no interest, creating additional downward pressure on the precious metal. According to The Economic Times, benchmark US 10-year Treasury yields pared earlier losses but continued to hover near their highest levels in more than a year, eroding demand for the non-yielding metal. The policy shift has fundamentally altered market expectations for Federal Reserve policy direction, with analysts noting that surging energy prices tend to intensify inflationary pressures and could prompt central banks to keep interest rates elevated for longer. While gold is often seen as an inflation hedge, higher rates weaken its appeal by raising the opportunity cost of holding bullion. Fed Governor Christopher Waller, who until recently had advocated for lower rates, said the central bank should axe the "easing bias" and effectively open the door to a possible rate hike.
US consumer sentiment fell to a record low in May, with the University of Michigan's final May sentiment index declining to 44.8 from 49.8 in April, according to the survey released Friday. According to The Economic Times, the data also showed consumers expect prices to rise an annualized 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months. The latest developments show that surging gasoline prices have heightened concerns over affordability and economic strain, as reported by Commerzbank. This deterioration in consumer confidence reflects growing concerns about the Middle East conflict's economic impact and rising energy costs, with oil prices climbing as investors doubted U.S.-Iran peace talks would yield any breakthrough.
The COMEX gold contract was last at $4,515.83 per ounce, down 0.6%, while silver fell 1.1% to $75.85 per ounce, platinum lost 2.5% to $1,916.62, and palladium fell 2.1% to $1,349.30, as reported by The Economic Times. US gold futures for June delivery settled 0.4% lower at $4,523.20. All precious metals were on course for weekly losses, with the Bloomberg Dollar Spot Index rising 0.1%, contributing to the broader decline in precious metals prices. Base metals have held up relatively well despite elevated oil prices, supported in part by the absence of clear signs of economic slowdown in the United States and China, according to Commerzbank analysts.
Bullion has traded within a fairly narrow range since falling sharply in the early days of the Iran war, as investors weigh higher rates against the prospect of a high-inflation, low-growth scenario. According to The Economic Times, although hopes of a deal between the US and Iran have recently put oil prices under some pressure again, Brent crude has now firmly established itself well above USD 100 per barrel. The longer the Strait of Hormuz remains closed, the more reliance on stockpiles will increase, as analysts note. Bullion is down about 15% since the conflict began in late February, reflecting the ongoing market uncertainty surrounding geopolitical tensions and their potential economic implications. The soaring energy costs tend to drive up inflation and could prompt central banks to keep interest rates higher for longer, which weakens demand for non-yielding bullion, even though it can be an inflation hedge.
