Gold Falls, US PPI and Geopolitical Risks Keep Dollar Strong
Gold (XAU/USD) consolidated losses on Wednesday (May 13), holding around $4,687 with an intraday decline of around 0.55% as the US dollar continued its recovery. Sentiment was clouded by continued uncertainty surrounding US-Iran talks, while markets increasingly considered the Fed's potential to maintain higher interest rates for longer.
Pressure came from a string of hotter US inflation data. April's PPI rose 6.0% yoy (from 4.3% in March) and beat expectations of 4.9%, while core PPI rose 5.2% yoy (from 4.0%) above the forecast of 4.3%. The day before, headline CPI also rose to 3.8% yoy in April (from 3.3%), beating expectations of 3.7% and marking the highest level since May 2023.
This repricing of inflation dampened expectations of an interest rate cut this year and increased the probability of a further hike. According to CME FedWatch, the probability of an interest rate hike is expected to rise to around 33% in December and approach 41.5% in January 2027, pushing US yields higher and reducing the appeal of non-yielding gold.
Beyond interest rates, the bullion market is also closely monitoring India's decision to sharply increase import tariffs on gold and silver from 6% to 15%. This policy has triggered a surge in domestic gold prices and has the potential to depress physical demand from one of the world's largest consumers in the coming months.
From a geopolitical perspective, there is no near-term solution in sight to end the war in the Middle East, with US-Iran peace negotiations remaining deadlocked over Tehran's nuclear program and the Strait of Hormuz remaining effectively closed. The market's next focus will be on developments in these negotiations and the meeting between US President Donald Trump and Chinese President Xi Jinping this week, as the combination of geopolitical headlines and the Fed's policy repricing will continue to determine the direction of the USD and XAU/USD.
Source: Newsmaker.id
