Gold Prices Plunge Below $5,000 Ahead of the Fed
Gold prices extended their decline on Wednesday (March 18th), falling through the psychologically important US$5,000 per troy ounce level, as uncertainty over interest rates and inflation intensified ahead of the Federal Reserve's policy decision scheduled for today.
Gold briefly re-established itself above US$5,000, but reversed course as the ongoing conflict in Iran kept the market on high alert for inflationary impacts.
Spot gold fell 2.9% to US$4,858.32 at 10:40 a.m. ET, while gold futures fell 2.9% to US$4,862.11 per ounce. Safe-haven demand was seen as limited as the market focused more on inflationary risks from war and energy prices, rather than short-term portfolio protection.
The Middle East conflict showed little sign of abating after an Israeli airstrike killed Iranian security official Ali Larijani earlier this week, followed by a retaliatory attack from Iran. Oil prices remained above US$100 per barrel, amid concerns about supply disruptions after the Strait of Hormuz, a key shipping route, was disrupted.
The inflation-boosting oil surge is adding pressure on gold as it increases the likelihood of central banks maintaining tighter policies for longer; the RBA even raised interest rates on Tuesday and warned of inflationary pressures from the conflict.
Market attention is now focused on the Fed's decision, followed by meetings by the Bank of Japan, the ECB, the SNB, and the Bank of England this week. The Fed is widely expected to hold rates, but the main focus is on whether the central bank anticipates rising inflation from the Iran conflict and how that will impact the interest rate outlook.
Markets are said to be increasingly discounting the chance of a rate cut until at least September, which increases the opportunity cost of holding non-yielding assets like gold.
While still gaining year-to-date, gold continues to retreat from its record high of around US$5,600 at the end of January. ING believes gold is "caught" in the short term between geopolitical risks and macro headwinds from higher interest rates.
Sentiment is also overshadowed by hotter-than-expected US PPI data for February, highlighting concerns that inflationary pressures could increase in the coming months amid the Iran conflict.
Source: Newsmaker.id
