Gold Heads for Biggest Weekly Drop Since June
Gold prices edged higher on Friday (July 17th) and hovered near US$4,000 per troy ounce. However, on a weekly basis, gold remains on track for a 3% decline, potentially recording its biggest weekly decline since early June.
Pressure on gold stems from the re-escalating conflict in the Middle East. The United States and Iran have engaged in attacks for the sixth consecutive day, while oil prices are heading for a strong weekly increase.
The five-month-old conflict has pushed up energy and commodity prices, from fuel to raw materials for manufacturing and food, again. This situation has fueled concerns that inflation could rise again due to cost pressures.
Inflation concerns have led the market to believe that the Fed still has the potential to tighten monetary policy, even though recent US economic data has tended to be weaker and does not support an imminent interest rate hike. Higher borrowing costs are putting pressure on gold because the precious metal does not provide a yield.
Market participants currently see only a 10% chance of a Fed rate hike at its July meeting. However, the market still expects at least one interest rate hike by the end of the year, as hawkish comments from several Fed officials have increased.
Consequently, gold remains under pressure as long as oil prices remain high and Fed officials continue to signal caution regarding inflation. Gold's slight rise on Friday was likely driven more by buying after a decline, rather than a sign of a strong trend reversal. (arl)
Source: Newsmaker.id
