Gold Weakens as Fed Rate Hike Expectations Strengthen
Gold prices weakened slightly on Tuesday (June 9) in the Asian session, trading around US$4,320. Bullion remained on the defensive as the market assessed the risk of higher interest rates as intensifying, while geopolitical uncertainty in the Middle East remained subdued.
On the ground, Iran and Israel reportedly agreed to restrain their attacks after an escalation that disrupted peace negotiations. However, a statement from Iran confirmed that tensions had not completely subsided: Tehran stated that it was halting operations for now but warned that it would resume action if Israel continued its attacks, including in southern Lebanon. This situation has kept the market cautious and kept headline risk high.
While gold typically finds support during geopolitical tensions, this time the effect is being mitigated by inflation and interest rate channels. Tensions in the Middle East have the potential to keep energy prices high, which in turn adds to concerns about global inflation. If inflation persists, central banks are likely to keep interest rates high for longer, an environment that is less favorable for gold because it does not provide a return.
Another pressure factor comes from the US. Last week's strong employment data prompted the market to reassess the probability of a Fed rate hike. When the odds of tightening rise, the dollar and yields tend to strengthen, making gold more expensive for non-USD buyers and reducing bullion's appeal relative to interest-bearing assets.
The market now views the odds of a Fed rate hike in December as significantly higher than a month ago, reflecting a more hawkish repricing. The next focus is this week's US inflation data: CPI (Wednesday) and PPI (Thursday), which will determine whether the market locks in a "higher for longer" scenario or gives gold some breathing room.
In the very short term, gold's direction will be determined by a combination of three factors: whether Middle East tensions escalate, how yields and the dollar react following the CPI/PPI releases, and whether the market reassesses interest rate hike bets. As long as expectations of tightening remain high, gold's recovery is potentially limited, although geopolitical risks have not disappeared. (Asd)*
Source: Newsmaker.id
