Gold prices fall 2% as interest rate cut hopes diminish
Gold prices fell 2% on Thursday as rising crude oil costs fueled inflation concerns. Investors have largely priced out potential U.S. rate cuts for this year.
Gold prices fell sharply on Thursday, declining by as much as 2% as crude oil prices climbed back above $100 per barrel. This surge in energy costs has intensified concerns regarding persistent inflation, leading investors to price out the likelihood of interest rate cuts by the United States Federal Reserve within the current year.
Spot gold was down 1.4% at $4,441.20 per ounce by 1024 GMT, following an earlier session low. U.S. gold futures for April delivery also saw a significant drop, losing 2.5% to reach $4,438.50. The pressure on bullion coincides with a 3% rise in oil prices, as markets react to the potential for prolonged conflict in Iran to disrupt global energy supplies.
ActivTrades analyst Ricardo Evangelista noted that the geopolitical situation has strengthened the appeal of the U.S. dollar as a safe haven. This shift is being driven by expectations that the energy crisis will keep inflation elevated, forcing central banks to maintain a restrictive monetary policy.
This dynamic is being reinforced by concerns that the energy crisis will continue to push inflation higher, forcing central banks, including the Federal Reserve, to adopt a more hawkish stance.
Benchmark U.S. 10-year Treasury yields rose toward eight-month highs, further dampening the appeal of the non-yielding metal. A stronger dollar makes gold more expensive for holders of other currencies, while higher yields increase the opportunity cost of holding the asset. Although gold is traditionally viewed as an inflation hedge, its attractiveness often diminishes when interest rates remain high.
Market data from the CME Group’s FedWatch Tool indicates that investors now see a 93% chance of rates holding steady in April, with a 38% probability of a rate hike by December. Expectations for a rate cut have plummeted to just 3%, a stark change from earlier forecasts that anticipated at least two cuts by 2026.
On the diplomatic front, U.S. President Donald Trump claimed that Tehran is looking for a deal to end the nearly four-week-long conflict. This statement was contradicted by the Iranian foreign minister, who indicated that while a U.S. proposal is being reviewed, there is no immediate intention to engage in talks to wind down hostilities.
Other precious metals followed the downward trend. Silver fell 4.2% to $68.31 per ounce, while Platinum decreased 1.8% to $1,884.61. Palladium also recorded a loss, dropping 3.4% to trade at $1,375.49.
