Gold prices declined as traders increased bets on Federal Reserve monetary tightening following comments from Governor Christopher Waller. On Friday, Waller indicated that the Iran war's energy shock could fuel inflation, prompting traders to fully price in a quarter-point rate hike by December.
Bullion slipped by as much as 1.1% as bond yields and the dollar climbed. Waller emphasized the need for patience in holding rates until the war's impact is clearer, but did not rule out a future rate hike if inflation does not slow soon. Meanwhile, US consumer sentiment fell to a record low in May, with long-term inflation expectations worsening due to the Middle East conflict.
The University of Michigan's final May sentiment index dropped to 44.8 from 49.8 in April. Consumers now expect prices to rise an annualized 3.9% over the next five to ten years, up from 3.5% in April, marking the highest in seven months.
“I support making clear the central bank’s next interest-rate move is just as likely to be an increase as a cut.”
Christopher Waller, Federal Reserve Governor
Since the Iran war began in late February, bullion has traded within a narrow range, down about 15%, as investors weigh higher rates against a high-inflation, low-growth scenario. Spot gold fell 0.8% to $4,506.87 an ounce in New York, while silver declined 1.5% to $75.56 an ounce. Platinum and palladium also fell.
The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1%.
Background
The ongoing geopolitical tensions and their impact on energy prices continue to create uncertainty in the markets. Investors are closely monitoring the Federal Reserve's next moves, which could significantly influence gold prices and broader market trends.
Investors are advised to keep a close watch on the Federal Reserve's upcoming decisions, as any changes in interest rates could have significant implications for gold prices and the broader financial markets.
