Gold Falls More Than 1% Due to Strengthening Dollar
Gold prices fell more than 1% on Monday (March 9th), pressured by a strengthening US dollar and rising expectations of higher interest rates as the Middle East conflict reignited inflation concerns. The strengthening dollar made greenback-denominated gold more expensive for holders of other currencies, while the prospect of higher interest rates dampened gold's appeal as a non-yielding asset.
Spot gold fell 1.5% to US$5,091.62 per troy ounce, while US gold futures for April delivery closed down 1.1% at US$5,103.70.
According to Jim Wyckoff, senior analyst at Kitco Metals, inflation concerns and expectations of higher interest rates fueled by war uncertainty weighed on gold. However, he believes that a prolonged conflict also has the potential to maintain demand for safe-haven assets, helping to establish a floor for gold prices.
Fundamentally, gold is often viewed as an inflation hedge, but low interest rates typically increase its appeal because gold pays no coupon or interest. As markets expect interest rates to remain high for longer, the opportunity cost of holding gold increases.
In energy markets, the dollar strengthened as oil prices soared near US$120 per barrel, prompting investors to seek liquidity, amid concerns that a prolonged Middle East war could disrupt energy supplies and depress global growth. The conflict is said to have effectively closed the Strait of Hormuz, a waterway that carries about a fifth of global oil and LNG trade through waters near the Iranian coast.
Market focus now turns to the release of US inflation data this week. The February Consumer Price Index (CPI) is scheduled for release on Wednesday, followed by the Personal Consumption Expenditures (PCE) index on Friday. Wyckoff warned that if inflation data flares again, the Federal Reserve could find itself in a difficult position, potentially leading to further declines in gold prices. The Fed is scheduled to hold its next policy meeting on March 17-18, and is widely expected to leave interest rates on hold.
In other metals, spot silver fell 0.2% to US$84.18 per ounce, platinum rose 1.1% to US$2,158.02, and palladium strengthened 2.4% to US$1,663.79.
Source: Newsmaker.id
