Gold Unstable, Fed Repricing Market
Gold prices held a three-day decline after the Federal Reserve kept US interest rates unchanged but signaled that inflation risks remain high amid the Iran war, which is clouding the economic outlook. Bullion held steady around $4,540/oz, after falling 3.4% in the previous three sessions.
The Fed's decision to hold rates on hold on Wednesday was in line with expectations, but was accompanied by hawkish dissent from some officials who rejected the statement's language suggesting the central bank would eventually cut rates again. The 8-4 vote was the most divided since 1992, highlighting internal differences amid heightened uncertainty over the conflict, which is now entering its third month.
The bond market responded with weakness, with the 2-year Treasury yield rising by the most on a Fed decision day since 2022. This move reflects growing bets that the central bank may need to raise borrowing costs if inflationary pressures persist, which is a drag on non-yielding gold. Nicky Shiels of MKS PAMP believes the "stagflation and high interest rates" narrative is back in the ascendant, and the risk of "Fed hikes" is still not fully priced in for gold.
Gold is also under pressure from the energy boom. Gold is poised for its second monthly decline in April, while energy prices are surging as progress in US-Iran talks stalled and energy shipments through the Strait of Hormuz were virtually zero. Oil rallied to wartime highs after Axios reported Trump would receive a briefing on new military options against Iran, with Brent trading above $124/barrel, near its highest intraday level since June 2022.
While the near-term outlook remains fragile, World Gold Council data shows central banks added to their gold holdings in the first quarter at the fastest pace in over a year, as falling prices spurred buying that offset selling from a small number of institutions. Christopher Wong of OCBC believes the current environment warrants a cautious view of gold prices unless oil weakens, but the medium-term structural case remains supported by central bank demand and reserve diversification. In recent trading, spot gold rose 0.1% to $4,553.38 (1:11 PM Singapore time), while the Bloomberg Dollar Index rose 0.1%.
5 key points:
- Gold held steady around $4,540 after falling 3.4% in three sessions.
- The Fed held interest rates steady, but the 8-4 vote and hawkish dissent reinforced the higher-for-longer tone.
- The 2-year yield rose sharply; the market is starting to price in the risk of a rate hike if inflation persists.
- Energy surge and deadlock in talks keep inflation pressures in check; Brent > $124 after new military options report.
- Central bank demand provides a medium-term cushion, but gold remains sensitive to oil, the USD, and interest rate expectations. (asd)*
Source: Newsmaker.id
