Gold Drops as Inflation Fears Rise and U.S. Rate Hike Prospects Loom

SadaNews - Gold prices declined amid increasing inflation fears, overshadowing the optimism that prevailed at the beginning of negotiations aimed at ending the conflict between the United States and Iran.

The precious metal's price fell by up to 1.2% to below $4,130 an ounce, retreating from the slight gains made in the previous session. The rise in consumer prices, caused by the ongoing four-month conflict in the Middle East, has raised the likelihood of central banks increasing borrowing costs, which poses a barrier to non-yielding precious metals.

Austin Goolsbee, President of the Federal Reserve Bank of Chicago, expressed his concerns about inflation on Monday, questioning whether all factors driving prices up are temporary. He stated in an interview with the "Marketplace" radio program from "American Public Media": "We were dealing with a problem of inflation that is significantly higher than the target, and it has been moving in the wrong direction."

Additionally, the hawkish tone adopted by the new Federal Reserve Chairman, Kevin Warsh, rattled investors and undermined the positive impact of the interim peace agreement between the U.S. and Iran signed last week. The dollar has risen more than 1% since the last central bank meeting, adding further pressure on the precious metal priced in U.S. currency.

Gold has fallen nearly one-fifth since the war began at the end of February, while silver has dropped over 30%. Traders will monitor the U.S. Personal Consumption Expenditures Price Index set to be released on Thursday, which is expected to accelerate.

Gold Amid Inflation and Iran Talks

Ahmed Asiri, an analyst at "Pepperstone Group Ltd", said: "I tend to believe that gold will remain within the range of $4,000 to $4,300" until more data comes in to "either reshape monetary policy outlook or confirm the hawkish tilt."

The emergence of early signs of progress in peace negotiations on Monday provided some support for the precious metal when U.S. Vice President J.D. Vance stated that the talks held over the weekend with Iran were "very good," and Iranian officials also indicated that progress had been made, although many obstacles remain as both sides strive to implement a memorandum of understanding signed last week.

Among other things, an emergency communication line has been established between Tehran and Washington to secure safe passage for vessels through the Strait of Hormuz. The United States also issued a 60-day license allowing Iran to sell some oil on the international market. Crude oil prices rose slightly on Tuesday following a decline.

Rona O'Connell, Head of Market Analysis for Europe, the Middle East, Africa, and Asia at "StoneX Group Inc", wrote in a note: "Gold and silver markets remain subject to external factors and are still hesitant to move in either direction." She added: "The technical positions are not favorable for either metal, although some flows are improving."

Spot gold declined by 1.2% to $4,140.95 an ounce at 11:10 AM in Singapore. Silver fell 2.8% to $63.25 an ounce. Both platinum and palladium decreased, while the "Bloomberg" Dollar Index rose slightly.

Silver Prices

Silver prices were also recorded near $62 an ounce.