Why Is Gold Still Falling Even as Oil Prices Decline?
Gold’s recent movement may look confusing for some market participants. Previously, when oil prices surged because of the U.S.-Iran war, gold also came under pressure. The reason was that higher energy prices raised inflation concerns, which increased expectations that the Federal Reserve could raise interest rates. Higher rate expectations pushed the U.S. dollar and Treasury yields higher, making non-yielding assets like gold less attractive.
However, even as oil prices are now falling sharply, gold has not automatically recovered. This is because the current decline in oil is not being seen purely as a sign of weaker economic demand. Instead, the market is reading it as a sign that war risks are easing and energy supply from the Middle East is gradually recovering. As geopolitical risks decline, demand for gold as a safe-haven asset also weakens. In other words, lower oil prices may ease energy-driven inflation, but they also reduce one of the key reasons investors usually buy gold.
Another important point is that gold’s main pressure is not coming only from oil. The stronger U.S. dollar and expectations of higher Fed interest rates remain the bigger drivers. The dollar is still supported because investors believe the Fed may still raise rates this year. As long as that expectation remains in place, gold will struggle to stage a strong rebound. Higher interest rates make yield-bearing assets such as government bonds more attractive than gold, which does not pay interest.
The next question is: why has the dollar not fallen together with oil prices? The answer is that the dollar is currently supported by several factors at once. First, the market still sees the Fed as more hawkish than many other major central banks. Second, the global selloff in technology stocks has pushed investors into safer assets such as the U.S. dollar. Third, other major currencies such as the euro, yen, and Australian dollar are also under pressure due to their own economic challenges. As a result, even though oil prices are falling, demand for the dollar remains strong.
Lower oil prices can actually have a mixed impact on the dollar. On one hand, cheaper oil may reduce inflation pressure and could eventually lower the need for the Fed to keep raising interest rates. On the other hand, as long as core inflation remains elevated and the U.S. economy stays resilient, investors may not be ready to abandon the dollar. This is why the greenback can remain strong even while crude oil prices are falling sharply.
For gold to recover in the short term, the market needs several catalysts. First, U.S. PCE inflation data must come in softer than expected, reducing expectations of further Fed rate hikes. Second, the U.S. dollar needs to pull back from its recent highs. Third, Treasury yields must decline more meaningfully. If these three factors happen together, gold could stage a technical rebound.
Gold could also receive support if ETF outflows begin to slow, central bank buying remains strong, or geopolitical tensions return and revive safe-haven demand. However, for now, the market still appears to view gold rebounds as selling opportunities as long as prices remain unable to reclaim the US$4,000–US$4,050 area. If gold can break back above that zone, it could attempt to test US$4,100–US$4,150. On the downside, failure to hold key support could expose gold to further pressure toward US$3,950–US$3,900.(mrv)
Source : Newsmaker.id
