Gold Strengthens as Dollar Retreats, US Inflation Data Looms

Gold prices stabilized during trading today, Wednesday, after climbing to record highs last week, as demand for safe haven assets fueled by geopolitical risks in the Middle East partially offset pressure from a stronger US dollar and Treasury yields.

The dollar settled near a five-month high, making the dollar-denominated yellow metal less attractive to holders of other currencies. US 10-year Treasury yields reached 4.6591%, hovering near the five-month high hit in the previous session. Gold prices are showing resilience in the face of rising Treasury yields and a strong US dollar, while finding some support from safe-haven flows in light of heightened geopolitical risks, as market participants continue to watch Israel’s response to Iranian attacks.

Senior US central bank officials, including Federal Reserve Chairman Jerome Powell, have refrained from offering any guidance on the possible timing of interest rate cuts, instead saying that monetary policy needs to be restrictive for a longer period. Data released from the United States has raised questions about the likelihood of interest rate cuts this year, as many global brokerages have revised down their expectations for the Federal Reserve to start cutting interest rates until September from June.

The market is pricing in a 68% chance of a rate cut in September, according to the US interest rate tracking tool available on Investing.com. Lower interest rates enhance the attractiveness of holding non-yielding bullion. Currently, we will see another gold rally if the situation escalates, but if the conflict in the Middle East subsides, the market’s focus will shift to the Federal Reserve, as it has become clear that it will not be able to cut rates anytime soon.

Gold Settlement Yesterday

Gold futures prices extended their gains during trading yesterday, Tuesday, supported by safe-haven demand amid escalating geopolitical tensions in the Middle East. At settlement, June gold futures prices rose more than 1% or $24.8 to $2407.8 an ounce, the 10th record high since the beginning of April, during which the most active contract gained about 7.55%.

Gold and Dollar Now

Gold futures are now down 0.34% to $2399 an ounce. While spot gold is steady at $2383 an ounce. After hitting an all-time high of $2431.29 on Friday. On the other hand, the dollar index is at 106.070 points.

Other Metals

Spot silver rose 0.3 percent to $28.16 an ounce, platinum fell 0.3 percent to $953.75, and palladium rose 0.4 percent to $1017.58.

Important Statements from the Fed Chair: No Rate Cuts in This Case

Federal Reserve Chairman Jerome Powell spoke yesterday at the Washington Conference on Canadian Economics and issued several comments on US monetary policy and the recent uptick in inflation.

Key Points from Jerome Powell’s Speech

Recent data has shown a weak impact on inflation recently. The labor market is moving towards a state of better balance despite its current strength.

Personal Consumption Expenditures (PCE) prices, the Fed’s preferred inflation gauge, showed a slight moderation in March. If inflation data remains elevated, the Fed will keep interest rates high until it comes down.

Monetary policy is likely to remain in its current stance this year until the Fed achieves its inflation-fighting goals. The current monetary policy needs more time to take effect. The Fed is striving to be highly transparent and predictable in its actions to guide market expectations.

Oil Dips as Demand Concerns Outweigh Middle East Supply Worries

Oil prices fell in early trading on Wednesday amid concerns about global demand due to weak economic momentum in China and diminished hopes for near-term US interest rate cuts, outweighing supply worries amid rising tensions in the Middle East.

Oil prices have retreated since the start of the week as unfavorable economic conditions have weighed on investor sentiment, capping gains from geopolitical tensions amid anticipation of Israel’s response to Iran’s attack on it earlier this week.

Demand concerns have grown due to expectations that US interest rate cuts are likely to be delayed and weaker-than-expected Chinese economic data. “Given that the market was up until last week on supply concerns amid rising tensions in the Middle East, the relatively limited Iranian aggression did not provide a basis for buying,” he added. He expects US West Texas Intermediate crude to trade between $83 and $88 without any new developments.

Jerome Powell, Chair of the Federal Reserve (US central bank), said that a string of disappointing data showing stronger-than-expected inflation means the Fed will likely need more time than previously thought to be confident that inflation is on its way to 2%. In China, the world’s largest oil importer, the economy grew faster than expected in the first quarter, but a number of March indicators, such as real estate investment, retail sales and industrial production, showed that domestic demand remains weak, affecting overall momentum.

In the Middle East, Israel’s War Cabinet has postponed its third meeting to decide on a response to Iran’s first-ever direct attack on Israel, as Western allies seek to quickly impose new sanctions on Tehran in a bid to deter Israel from a major escalation in the Middle East.

However, analysts ruled out that the unprecedented Iranian missile and drone attack on Israel would lead to tough US sanctions on Iranian oil exports due to concerns about raising oil prices and angering China. Meanwhile, market sources cited American Petroleum Institute (API) figures on Tuesday saying that US crude oil inventories rose last week more than analysts polled by Reuters had expected, but gasoline and distillate inventories fell. Official data from the Energy Information Administration (EIA), the statistical arm of the US Department of Energy, is due out on Wednesday.

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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