On March 13, ATFX reported that gold prices are on track for a second consecutive weekly decline due to a stronger U.S. dollar and rising oil prices driven by ongoing Middle East conflicts, which have intensified inflation concerns and dampened expectations for interest rate cuts. During the Asian trading session, gold edged slightly above $5,100 per ounce as bargain hunters entered the market, but it is still likely to record a weekly loss of over 1%.
For gold, higher energy prices and growing inflation worries have significantly reduced market expectations for rate cuts by the Federal Reserve and other central banks. Yesterday’s U.S. initial jobless claims fell by 1,000 to 213,000, indicating continued stability in the labor market, further reducing the likelihood of lower borrowing costs. Markets expect the Fed to keep interest rates unchanged at next week’s policy meeting.
Persistent tensions between the U.S.-Israel alliance and Iran have eroded gold’s earlier gains. Over the past two weeks, gold has experienced sharp volatility, with investors selling the metal to cover margin calls in other portfolios. Despite this, gold has still risen approximately 18% year-to-date and has largely held above the $5,000 per ounce level.
As previously noted, recent sharp swings in the gold market reflect a clash between reflation trades and geopolitical safe-haven demand, with a stronger U.S. dollar emerging as the key short-term factor weighing on gold. Market expectations for Fed rate cuts have cooled considerably, driving up the U.S. dollar index and Treasury yields, which in turn reduces the appeal of non-yielding assets like gold and has led to two consecutive weeks of declines.
Typically, geopolitical conflicts boost gold's safe-haven appeal and push prices higher. However, this dynamic has recently broken down, with some investors even selling gold to cover losses in other risk assets. This is because the conflict has persisted without escalating out of control, leading markets to price in its long-term negative impact on the global economy—primarily through higher oil prices—prompting some investors to liquidate gold holdings.
Tonight’s release of the U.S. core Personal Consumption Expenditures (PCE) price index for January—the Fed’s preferred inflation gauge—will be the final key reference before next week’s policy decision. If the monthly or annual core PCE figures unexpectedly rise, it would be bearish for gold. Such an outcome would confirm that inflation is more stubborn than anticipated, extinguishing any remaining hopes for a rate cut in the first half of the year. This could push the dollar and Treasury yields even higher, potentially driving gold toward $5,050. If the data meets expectations, markets may interpret it as a sign of temporarily stabilizing inflation, which could trigger short covering and bargain hunting, helping gold rebound further above $5,100.
However, since the report does not reflect the latest developments in the Iran situation, even if tonight’s PCE data comes in warmer (bullish for gold), its positive impact may be short-lived. Market focus will quickly shift back to Middle East tensions and next week’s Fed meeting. While the Fed is almost certain to keep rates unchanged, the policy statement and updated dot plot will be key sources of uncertainty. Chair Powell’s remarks on recent inflation data and geopolitical risks will be crucial. If he downplays monthly data volatility and emphasizes signs of cooling in the labor market, it could ease market pessimism. Conversely, if he expresses deep concern about inflation, gold will likely remain under pressure.
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