Gold prices edged lower on Wednesday as a stronger U.S. dollar and concerns about persistent inflation increased expectations that interest rates may remain higher for longer.
Spot gold fell 0.4% to $5,169.02 per ounce by 1:33 p.m. ET (1733 GMT), after posting gains in the previous session. Meanwhile, U.S. gold futures for April delivery settled 1.2% lower at $5,179.10.
The U.S. dollar index rose by 0.4%, making gold and other dollar-priced commodities more expensive for buyers using other currencies, which reduced demand.
According to Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, the gold market is currently experiencing mixed pressures.
He explained that gold is caught in a “push-and-pull” situation between strong safe-haven demand due to geopolitical tensions and concerns that interest rates may stay high for an extended period.
Gold is traditionally viewed as a hedge against economic uncertainty and inflation. However, higher interest rates tend to reduce its appeal because the metal does not offer any yield compared with interest-bearing assets.
Meanwhile, oil prices jumped 4% after fresh attacks on ships in the Strait of Hormuz raised concerns about potential disruptions to global supply. Analysts said the International Energy Agency’s proposal to release oil reserves may not be enough to ease these fears.
Iran warned that global oil prices could surge to $200 per barrel. The country’s forces reportedly attacked merchant ships and fired at Israel and other targets across the Middle East, further escalating regional tensions.
On the economic front, new data showed the U.S. Consumer Price Index (CPI) rose 0.3% in February, matching market expectations and increasing from 0.2% in January. On an annual basis, CPI increased 2.4%, also in line with forecasts.
Investors are now waiting for the delayed January Personal Consumption Expenditures (PCE) price index, which is scheduled to be released on Friday and is closely monitored by the Federal Reserve.
Analysts at Standard Chartered said that temporary declines in gold prices are not unusual, especially when investors sell assets to raise cash.
Despite the short-term pressure, the bank maintained a positive long-term outlook, expecting gold prices to resume their upward trend after the current phase of profit-taking.
Among other precious metals, spot silver dropped 3.5% to $85.34 per ounce, platinum fell 0.8% to $2,183.10, and palladium declined 1.4% to $1,631.59.
