Gold prices fell as the Middle East conflict entered its sixth day with no signs of resolution, weighed down by a stronger U.S. dollar and expectations of reduced monetary easing. During the U.S. trading session, gold dropped by as much as 1.5%. Inflation concerns driven by rising energy prices pushed up the U.S. dollar and Treasury yields. High inflation could prompt the Federal Reserve to keep interest rates steady or even raise them to curb price pressures.
Swap traders now expect the Fed to cut rates by about 35 basis points by year-end, compared with expectations of 60 basis points last weekend. Since gold does not pay interest, this shift in expectations has put downward pressure on its price.
Some investors also sold gold to obtain liquidity to cover losses in U.S. stock markets. A commodities strategist noted that part of gold’s decline “appears driven by a risk-on rally in equities, particularly during U.S. trading hours, where investors are treating gold as a source of liquidity rather than questioning its fundamentals.” The strategist added, “Once equity market momentum fades, such selling pressure tends to ease, and gold’s overall supportive narrative remains intact.”
Supported by heightened geopolitical and trade tensions, as well as concerns over the Fed’s independence, gold has risen by about one-fifth so far this year. In late January, the price reached a record high above $5,595 per ounce.
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