Gold prices decline as inflation fears boost US dollar
Gold fell on Monday as inflation fears and a stronger dollar weighed on bullion. Markets now expect the Fed to maintain steady rates at its March meeting.
Gold prices retreated on Monday as escalating geopolitical tensions involving the United States, Israel, and Iran intensified inflation fears. This shift has dampened expectations for imminent interest rate cuts and bolstered the greenback. Spot Gold declined 1.2% to $5,109.39 per ounce by 1012 GMT, recovering slightly from an earlier drop of more than 2%. Meanwhile, U.S. gold futures for April delivery slipped 0.8% to $5,118.20. UBS analyst Giovanni Staunovo noted that the initial market reaction is consistent with historical patterns during periods of financial stress. > Historically, it is not uncommon to see gold falling as first reaction when financial markets show stress signs as gold is a highly liquid asset. Global stock markets, particularly in Asia, experienced significant losses as a surge in Brent Crude Oil prices—which jumped over 15% to mid-2022 levels—threatened to drive up global living costs. Investors seeking liquidity pivoted toward the dollar, pushing the dollar index toward three-month highs and making bullion more expensive for international buyers. Staunovo further explained that the energy market is influencing broader monetary policy expectations. > Market participants are translating higher oil prices in rising inflation and central banks turning more hawkish. Expectations for the Federal Reserve to maintain current interest rates at its March 18 meeting have grown following the outbreak of conflict. According to the CME Group FedWatch tool, the probability of a rate hold in June rose to over 51%, up from less than 43% last week. The geopolitical landscape was further complicated as Iran named Mojtaba Khamenei to succeed his father as supreme leader. Rising 10-year Treasury yields in the United States have further increased the opportunity cost of holding non-yielding assets. Other precious metals also faced selling pressure. Silver dropped 0.3% to $84.07 per ounce, following an earlier slide of 5%. Platinum fell 1% to $2,113.97, while Palladium decreased 1.3% to $1,604.09.
