Ceasefire Threatened, Gold Falls Sharply
Gold prices plunged more than 1% on Monday (June 1) as market sentiment shifted to neutral amid Middle East developments that again threatened the US-Iran ceasefire. XAU/USD fell below $4,490 after briefly reaching a daily peak of US$4,545, indicating that gold's rapid recovery was stalled as the market re-priced inflation risks.
The primary trigger came from a surge in oil prices. US-Iran negotiations were said to have stalled after Iran stopped exchanging messages with the US, while Iranian media suggested the ceasefire could collapse if Israeli attacks on Lebanon continued. WTI briefly rose by around US$6 to a peak of US$94.78/barrel before paring some of its gains, but the nearest contract was still up around 4.5% at US$91.79. The rise in oil also boosted the dollar, with the DXY rising 0.22% to 99.17, adding pressure on USD-priced gold.
On the data side, the US ISM Manufacturing PMI rose to 54.0 in May (the highest since 2022) from 52.7 in April, indicating a resilient economy. However, the Prices Paid component remained high, although it fell from 84.6 to 82.1, confirming that input costs remain high. The combination of soaring oil prices and high input costs has the market rethinking the scenario of prolonged high interest rates.
The money market is also said to be pricing in the possibility of a tighter policy: the probability of a Fed rate hike by the end of 2026 is recorded at nearly 68%, according to Prime Terminal. This is weighing on gold, as non-yielding assets tend to be held back when interest rate expectations rise.
This week's focus will be on a series of US employment data ahead of Friday's Non-Farm Payrolls (NFP), comments from Fed officials, and the release of the Beige Book. Markets are also starting to look ahead to the Fed's June 16–17 meeting, which will be the first policy meeting under new Chairman Kevin Warsh—making any inflation or energy shocks potentially rapid changes in the direction of the dollar, yields, and gold. (Arl)*
Source: Newsmaker.id
