Gold Restrained by Inflation Risks
Gold prices are holding back losses amid the lack of progress on reopening the Strait of Hormuz, which is keeping inflation concerns high and leading the market to reassess the probability of a tighter global interest rate environment. Bullion is trading around $4,480/oz, after falling nearly 2% on Tuesday (May 20).
Fundamentally, the current geopolitical tensions are creating an unusual tug-of-war for gold: conflict risks typically support hedge funds, but the inflationary channel from energy prices is driving higher interest rate expectations and lifting yields, which tends to weigh on gold as it doesn't provide an interest yield. Consequently, gold has moved relatively narrowly against this backdrop, despite reportedly falling 15% since the outbreak of the war.
Going forward, gold's direction will largely depend on whether the market continues to view inflation as the dominant risk or begins to reassess monetary easing due to growth concerns. If inflationary and yield pressures persist, gold's recovery is likely to be limited; however, if the narrative shifts to a slowdown and the likelihood of easing strengthens, gold could potentially find support, although volatility remains dependent on geopolitical headlines. At the same time, movements in other metals demonstrate the market's sensitivity to inflation: silver plunged 5% on Monday and remains volatile, while the Bloomberg Dollar Index remained relatively flat after rising 0.4% in the previous session.
The next variables to watch are developments in the Strait of Hormuz, the escalation or de-escalation of the conflict (including policy signals from the US), the direction of long-term US bond yields, shifts in interest rate expectations from the Fed and global central banks, and any significant changes in ETF flows and volatility indicators that could signal new catalysts for the gold market. (Asd)*
Source: Newsmaker.id
