TLDR
- Gold declined approximately 0.4% to settle around $4,699 per ounce Wednesday
- April’s US inflation figures marked the sharpest increase since 2023, propelled by gasoline costs tied to Iran conflict
- Market participants now anticipate roughly 33% probability of Federal Reserve rate increase by December, up from essentially zero a month prior
- Trump journeyed to Beijing for discussions with Xi Jinping, addressing Iran tensions, trade relations, and Taiwan issues
- In an unexpected policy shift, India elevated gold import duties from 6% to 15% to safeguard its rupee and foreign exchange holdings
The yellow metal retreated Wednesday following unexpectedly elevated US inflation figures that amplified speculation the Federal Reserve might implement interest rate increases before year-end.
Spot gold decreased 0.4% to reach $4,699.10 per ounce during London’s morning session. Meanwhile, gold futures climbed modestly, advancing 0.4% to $4,706.72 per ounce. The precious metal had already shed 0.4% in the previous trading session.
April’s US consumer price index registered its most significant acceleration since 2023. The surge was substantially attributed to escalating gasoline costs, which resulted from the continuing Iran military conflict.
Interest-rate swap market participants now factor in approximately a one-in-three probability of Fed tightening by December’s conclusion. This represents a dramatic shift from last month when such odds hovered near zero.
Elevated interest rates typically exert downward pressure on gold. Since the precious metal generates no income, rising rates make alternative investments comparatively more appealing.
US Treasury yields advanced following the inflation announcement. ING analysts characterized the movement as “more re-pricing rather than outright selling,” though they cautioned that vulnerabilities are accumulating.
“The Fed can’t cut here. And risk assets are pushing the boundaries of positivity,” ING analysts wrote in a note.
Investors are now focusing on Wednesday’s US producer price index release for additional insights regarding inflation trajectories and the Federal Reserve’s forthcoming policy direction.
What the Iran War Means for Gold
The Iranian military engagement, now extending beyond two months, has compromised maritime traffic through the Strait of Hormuz, a vital artery for global petroleum transportation. This interruption has intensified energy-related inflation concerns across international markets.
Trump indicated earlier this week that Iranian negotiations were on “life support” following Tehran’s dismissal of a US-supported peace framework. These remarks sustained elevated geopolitical uncertainty and diminished prospects for an imminent ceasefire.
Trump traveled to China’s capital this week for high-level talks with President Xi Jinping. Discussion topics encompass trade policy, the Iran situation, Taiwan’s status, and worldwide supply network challenges.
Market observers have indicated that China, a significant purchaser of Iranian petroleum, might facilitate a comprehensive peace arrangement. Nevertheless, anticipations for significant progress during this particular meeting remain modest.
Central Bank Demand Keeps Gold Supported
Notwithstanding rate-related headwinds, gold has maintained relative stability. JPMorgan Private Bank analysts identify robust central bank acquisitions as a fundamental stabilizing element.
“Gold prices stayed resilient when rates spiked. And it tended to rally when rates declined,” said Yuxuan Tang, Asia head of rates and FX strategy at JPMorgan Private Bank.
She added that central bank demand “supports our view that gold can deliver an uncorrelated return profile.”
Silver, which has appreciated 17% throughout May, remained essentially flat at $86.50 per ounce Wednesday. Both platinum and palladium recorded minor declines.
In a distinct development, India increased its gold and silver import levies to approximately 15% from 6%. The unexpected policy adjustment emerged as India seeks to defend its national currency and bolster foreign-exchange reserves. India ranks as the globe’s second-largest gold-consuming nation.
The US dollar index also strengthened Wednesday, maintaining proximity to a one-week peak. A more robust dollar can elevate gold costs for international purchasers, contributing additional downward momentum on valuations.
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