Gold prices slipped on Thursday, as a renewed bout of inflationary concerns sparked by rising oil prices weighed on sentiment. The ongoing conflict in Iran showed few signs of ending, with the country’s new leader saying the critical Strait of Hormuz must remain closed.
Spot gold XAU/USD fell 1.5% to $5,099.82/oz and Gold Futures dropped 1.4% to $5,105.16/oz as of 14:44 ET (18:44 GMT).
Oil prices see renewed spike
Oil surged on Thursday, after Iran’s new leader Mojtaba Khamenei said the Strait of Hormuz will stay shut. The narrow waterway is a critical chokepoint through which a fifth of the world’s oil and gas supply flows.
The strait’s closure has caused the largest supply disruption in the history of the global oil market, the International Energy Agency warned.
Market participants and analysts are concerned that the massive spike in oil prices will reverberate throughout the world in an inflationary shock. Brent crude futures, the global benchmark, were last hovering around $100 a barrel.
Gold pressured by higher dollar, low expectations for rate cuts
Since the Iran conflict broke out in late February, gold has largely remained under pressure, while the dollar has emerged as the more popular safe haven asset of choice. Bullion has continued to flit between the $5,000-$5,200 an ounce level.
Central banks, such as the Federal Reserve, may be forced to reconsider near-term interest rate cuts should inflation accelerate. Higher borrowing costs may attract more foreign investment, bolstering the appeal of the dollar.
A stronger greenback can dent gold, making the yellow metal more expensive for overseas buyers and taking the sheen off of its traditional safe-haven appeal. The Dollar Index was last rose roughly 0.3%.
PCE inflation data awaited
Beyond the Iran conflict, investors were also keeping tabs on U.S. inflation data this week.
Consumer price index figures on Wednesday showed inflation remained largely steady in February from the prior month. But the print did not reflect the inflation bump from rising oil prices due to the U.S.-Israeli campaign in Iran.
The personal consumption expenditures price index for January, due later this week, is expected to provide more cues on U.S. inflation. Crucially, the number is the Fed’s preferred inflation gauge, and is likely to factor into expectations for long-term rates.
Gold helps to boost U.S. exports to record high in January
Data from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis on Thursday showed the U.S. trade deficit narrowing sharply in January, as exports jumped to a record high and imports fell.
Exports surged to $302.1 billion in the first month of this year, driven by goods exports of $195.5 billion. Growth in goods exports were boosted primarily by $9.1 billion of industrial supplies and materials, which included $8.8 billion in non monetary gold and other precious metals.
"Exports of nonmonetary gold continue to whipsaw the U.S. international trade deficit and suggest the recent moves are not as sharp as they appear at face value," Wells Fargo’s Shannon Grein said.
"When you exclude the gold-related categories of trade, the international trade balance still narrowed in January, but not to the same degree as the headline data suggest," she said.
"In January, gold wasn’t the sole thing driving exports $14.6 billion higher. Other precious metals rose a similar amount as gold, up just over $4 billion last month. Together these two components account for nearly 60% of the export gain," Grein added.
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