Gold Heads for Second Weekly Decline
Gold prices weakened on Friday (June 12th), heading for a second consecutive weekly decline. The main pressure comes from expectations of higher US interest rates ahead of next week's Federal Reserve policy meeting.
Spot gold prices fell 0.2% to US$4,205.39 per ounce and have weakened around 2.9% so far this week. Meanwhile, US gold futures for August delivery rose 2.7% to US$4,226.10 per ounce.
Pressure on gold arises because the market still believes US inflation has the potential to remain high for longer. Although oil prices began to decline following news that a peace memorandum between the US and Iran could be signed as early as Sunday, investors remain skeptical that inflationary pressures will subside quickly.
Since the outbreak of the Persian Gulf War in late February, gold has been under pressure as the market worries that surging oil prices could trigger renewed inflation. Under normal conditions, gold is often considered a hedge against inflation. However, as inflation pushes central banks to maintain high interest rates, gold's appeal as a non-yielding asset diminishes.
US economic data this week also reinforced this pressure. Producer prices rose more than expected in May, while consumer inflation surged above 4%. This has led market participants to estimate the probability of a US interest rate hike in December at over 58%. Investors are now focused on the Fed's June 16-17 meeting.
This meeting will be highly anticipated, as it will be the first chaired by Kevin Warsh. The market expects the Fed to maintain steady interest rates, but investors will be closely monitoring the latest policy tone and projections to gauge whether the central bank is becoming more hawkish or opening up room for further easing.
In other precious metals markets, spot silver fell 0.7% to US$66.88 per ounce and platinum weakened 0.4% to US$1,712.77. Both are also headed for weekly losses. Meanwhile, palladium rose 1.6% to US$1,285.03 and is likely to post a weekly gain.
In my opinion, gold's short-term direction will still be largely determined by a combination of US inflation, Fed interest rate expectations, and developments in the US-Iran peace process. If a peace deal is truly realized and oil prices continue to fall, inflationary pressures could ease. However, as long as the market still sees the possibility of high interest rates remaining for longer, gold's upside is likely to remain limited.
Source: Newsmaker.id
