Gold Falls 1%, Oil Rises, and Dollar Strengthens, Pressing Bullion
Gold prices weakened on Wednesday (June 3) as markets renewed concerns that war-fueled inflation could keep interest rates high for longer. Spot gold fell 1% to US$4,440.99/oz, while US gold futures closed down 1.2% at US$4,466.90.
Tensions in the Gulf escalated again after Iran's attack on Kuwait reportedly damaged an airport and injured dozens, while the US military conducted strikes around the Strait of Hormuz. Diplomatic progress appears to have failed to show significant progress, leading the market to reintroduce a premium on energy risk.
Rising energy prices are seen as lifting inflation expectations, which in turn increases the likelihood of interest rates remaining tight. Although gold is often viewed as an inflation hedge, this asset tends to be less attractive when interest rates are high because it offers no yield.
As oil strengthened, the dollar index (DXY) rose for the third consecutive day, adding pressure on the USD-denominated precious metal. A stronger dollar makes gold more expensive for non-USD buyers, reducing demand.
From the Fed's perspective, New York Fed President John Williams reiterated that he doesn't see a need to change short-term interest rates. However, Cleveland Fed President Beth Hammack signaled that the Fed could need to raise interest rates if already high inflationary pressures continue to escalate. The market is now awaiting the May Nonfarm Payrolls (NFP) report on Friday as a major determinant of policy direction, after the ADP report showed private payrolls rose stronger than expected.
In other metals, pressure also spread: spot silver fell 2.2% to US$73.4/oz, platinum fell 3.5% to US$1,868.58, and palladium fell 3.5% to US$1,321.97. (arl)
Source: Newsmaker.id
