Gold Edges Higher, Dollar and Yields Weaken, But Energy Inflation Limits Rally
Gold (XAU/USD) edged higher on Monday (March 16th) after reversing intraday losses, helped by a weaker US dollar and Treasury yields following an earlier rally. XAU/USD traded around US$5,030 after briefly dropping to US$4,967, its lowest level in more than three weeks.
However, inflation concerns fueled by the oil surge stemming from the US-Iran war limited gold's upside, as markets considered the risk of central banks keeping interest rates high for longer. Shipping disruptions in the Strait of Hormuz remained in focus as the conflict entered its third week, with Brent rising about 33% and WTI about 37% from pre-conflict levels, keeping the risk of stagflation alive.
On the geopolitical front, the US launched airstrikes on Kharg Island targeting military sites, while President Donald Trump warned of possible attacks on Iran's oil infrastructure if Tehran disrupted shipping. Iran has said Hormuz will be closed only to "enemies" and those supporting aggression, prolonging uncertainty around global energy supply lines.
Expectations for a Fed rate cut have also waned. The probability of a 25-bps cut in June has dropped to 23.6% from 51.2% a month ago (CME FedWatch), and the market is now pricing in just one cut by year-end. This is a headwind for gold as persistently high interest rates increase the opportunity cost of holding non-yielding assets.
This week's focus is on Wednesday's Fed decision, which is expected to hold rates at 3.50%-3.75%, as well as Jerome Powell's guidance, the SEP, and the dot plot for interpreting policy responses to energy shocks. Decisions by other major central banks—the Bank of England, the ECB, the Bank of Japan, the Bank of China, and the Reserve Bank of England—will also influence the direction of the dollar, yields, and risk appetite, which determine gold's movements.
Source: Newsmaker.id
