Gold Stuck Below US$4,500, Oil Rises Rekindle Inflation Concerns
Gold prices weakened on Wednesday (June 3rd) and struggled to regain ground above US$4,500 after bouncing from the US$4,550 area. Pressure arose as the market reassessed its view that global interest rates would remain high for longer, making gold—a non-yielding asset—lose its appeal compared to interest-bearing instruments.
The trigger primarily came from the three-day surge in oil prices. The energy surge heightened inflation concerns, leading investors to further reduce expectations of monetary policy easing. At the same time, the US dollar remained relatively strong due to the need for safe havens and because the market perceived the Fed as having little room to soften.
Geopolitical tensions also escalated. The US military (CENTCOM) described its forces as conducting a "self-defense" attack on Iran's Qeshm Island. Iran reportedly retaliated by launching missiles and drones at US military facilities in Kuwait and Bahrain, although many were intercepted. The Israel-Hezbollah conflict is also said to be intensifying, while the deadlock over Iran's nuclear program and the status of the Strait of Hormuz keeps the risk of escalation high.
On the diplomatic front, the signals are less encouraging. US Secretary of State Marco Rubio said Washington would not lift sanctions simply in exchange for the full opening of Hormuz, and that any sanctions relief would depend on Iran's actions regarding enriched uranium. Meanwhile, President Donald Trump reportedly emphasized that the US blockade would continue until negotiations were concluded, leading the market to view the process as a long and risky one.
The combination of higher oil prices and geopolitical uncertainty has led the market to reassess the hawkish stance of central banks. Cleveland Fed President Beth Hammack emphasized her commitment to returning inflation to 2% and left open the possibility of action if inflation persists. CME FedWatch also indicates a probability above 50% for a 25 bps interest rate hike at the December meeting, reinforcing the continued high US yields.
Against this backdrop, gold is under pressure from two sides: a strong dollar/yield and an unabated energy inflation narrative. As long as oil prices remain high and the market continues to price in the risk of further tightening, gold's recovery is likely to be limited, and its movements will remain sensitive to Middle East headlines and the Fed's policy signals. (asd)
Source: Newsmaker.id
