Gold Weakens After US Inflation Data, Rate Cut Hopes Fade
Gold prices weakened on Thursday (March 12) after the release of monthly US inflation data made the prospect of a Fed interest rate cut appear increasingly remote, as the war in the Middle East continues to rage. Bullion hovered around $5,160 per ounce in early trading, after a slight decline in the previous session.
Although US core inflation was relatively controlled at the start of the year—before the conflict broke out—the market is now more focused on future inflation risks. The energy surge and supply chain uncertainty caused by the war have heightened concerns about forward-looking inflation, narrowing the opportunity for the Fed to lower borrowing costs. In Europe, the European Union has also warned that regional inflation could exceed 3% this year.
The US-Israel-Iran conflict, now in its 13th day, continues to disrupt oil production and refining activities in the Middle East. Oil prices rose for a second day, as the market assessed that the risk of prolonged war still outweighed the emergency release of the largest oil reserves in history by developed countries. President Donald Trump has also hinted at the possibility of using the US Strategic Petroleum Reserve (SPR) to calm prices.
For gold, the combination of persistently high interest rates—which pose a drag on non-yielding assets—and the need for portfolio liquidity makes its movements vulnerable. In volatile periods like this, gold is often used as a "fund source" by investors to cover needs in other assets. Since the outbreak of the war, the volume of gold holdings in ETFs has declined, although there was some inflow on Tuesday after last week's largest decline in more than two years.
Nevertheless, gold has still recorded strong gains so far this year, supported by its role as a hedge against heightened geopolitical turmoil. However, recent price movements have tended to be choppy, and upward momentum appears to have stalled since the war began on February 28.
At the last update, spot gold was down slightly by 0.5% at around $5,150.82 per ounce. Silver weakened, while platinum and palladium also moved lower. The Bloomberg Dollar Index strengthened slightly, adding mild pressure to the precious metal.
Source: Newsmaker.id
