Gold Corrects, Fed Expectations Strengthen
Gold (XAU/USD) continued its decline on Tuesday, erasing the previous day's gains after hotter-than-expected US inflation pushed up US Treasury yields and the dollar. At the time of writing, XAU/USD was trading around US$4,665, down nearly 1.50%, after briefly touching a three-week high of US$4,773 in the Asian session.
Bureau of Labor Statistics data showed that headline CPI rose 0.6% month-on-month in April (after 0.9% in March), in line with expectations. However, year-on-year inflation rose to 3.8% from 3.3%, above the 3.7% forecast. Core CPI rose 0.4% month-on-month (from 0.2%, above the 0.3% expectation), while core YoY rose to 2.8% from 2.6%, also beating the 2.7% forecast.
Rising inflation, said to be primarily driven by energy as oil prices remain high amid disruptions around the Strait of Hormuz, reinforces the view that the Fed may hold interest rates higher for longer or even consider raising them. These expectations have pushed Treasury yields up, a condition that typically reduces the appeal of gold because the precious metal offers no yield.
According to CME FedWatch, market participants currently expect the Fed to keep interest rates unchanged for the remainder of the year. However, the market still rates a small chance of a rate hike at the December meeting, with a probability of around 36%.
Beyond the data, geopolitical tensions are again a risk backdrop. US-Iran negotiations are said to remain deadlocked over the nuclear program, with US President Donald Trump saying a ceasefire is "on very strong life support" after dismissing Iran's latest response as "totally unacceptable." Reports also suggest Trump is considering military operations and the possibility of restarting "Project Freedom" in the Strait of Hormuz, while Iranian Parliament Speaker Mohammad Bagher Ghalibaf warned Tehran is ready to respond to "any aggression." (gn)*
Source: Newsmaker.id
