Market Reversal! Inflation Concerns Suppress US-Iran Negotiation Optimism, Gold Price Drops Nearly 2% to $4115/Ounce
Due to inflation concerns outweighing earlier market optimism over US-Iran negotiation progress, gold prices fell. Gold dropped as much as 1.8% to near $4,115 per ounce, erasing the small gains from the previous session. The ongoing conflict in the Middle East, which has lasted for nearly four months, has pushed up consumer prices and increased the likelihood of rate hikes by major central banks, creating a bearish environment for non-interest-bearing precious metals.
Chicago Fed President Austan Goolsbee said Monday he is worried about inflation and questioned whether all the factors driving price increases are temporary. He stated, “We continue to face inflation problems that are well above target and moving in the wrong direction.”
The inflation dilemma drags down gold prices
In addition, newly appointed Fed Chairman Kevin Walsh's hawkish tone has unnerved investors, offsetting the positive effect from the US-Iran interim peace deal signed last week. Since the Fed's last meeting, the US dollar has risen by more than 1%, further weighing on dollar-denominated gold prices.
Deutsche Bank analyst Michael Hsueh stated in a research report: “The main factors driving gold prices lower are the market's repricing of Federal Reserve policy expectations combined with consistently strong US macroeconomic data.” The bank lowered its gold price forecast for the third quarter to $4,300 per ounce, more than 20% below the previous estimate, and also cut its Q4 forecast to $4,800 per ounce.
Deutsche Bank’s somewhat pessimistic perspective aligns with Goldman Sachs’s adjustment last week. Goldman Sachs lowered its year-end gold price forecast by $500 to $4,900 per ounce, citing its belief that the Federal Reserve will not cut rates this year.
Since the outbreak of war in Iran at the end of February, gold prices have fallen by more than one fifth, while silver prices have dropped by about one third. Traders will be watching closely for Thursday's release of the US Personal Consumption Expenditures Price Index, which is expected to show faster growth.
Pepperstone Group Ltd. analyst Ahmad Assiri said: “I tend to believe that gold prices may stay in the $4,000 to $4,300 per ounce range” until more data emerges, “either reshaping monetary outlooks or confirming the hawkish stance.”
On Monday, US Vice President Vance said talks with Tehran were “very, very good,” indicating initial progress in peace negotiations, which provided some support for gold. Iranian officials also noted some progress in the talks, although both sides still face many obstacles in implementing the memorandum of understanding signed last week.
StoneX Group’s Rhona O’Connell, Head of Market Analysis for Europe, Middle East, Africa, and Asia, said: “Gold and silver markets remain subject to external macro influences, and prices lack a clear, unilateral direction. Although there has been some improvement in capital flows, the technical setup for both metals is not optimistic.”
As of press time, spot gold was down 1.61% to $4,124.10 per ounce; silver was down 3.87% to $62.59 per ounce; platinum and palladium were both down more than 2%; the Bloomberg Dollar Spot Index rose 0.1%.
Editor: Guo Jian
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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