Gold fell 0.4% on Thursday as a stronger dollar and fading expectations for rate cuts weighed on prices. Rising oil costs are fueling inflation concerns while US PCE inflation data on Friday may shape the next move.
Highlights
- Gold fell 0.4% to $5,153.79 an ounce on Thursday as the US dollar strengthened.
- April US gold futures were down 0.4% to $5,159.20.
- When the dollar falls, gold jumps higher for buyers using other currencies.
- Rising oil prices are also rising inflation concerns
- Iran has given the world a dire warning to prepare for oil to hit $200 a barrel.
Gold Drops as Stronger Dollar Weighs Down
Gold rates fell on Thursday. The US dollar gained strength and that moved gold lower. Spot gold fell 0.4% to $5,153.79 an ounce. April US gold futures dropped the same amount to $5,159.20. When the dollar rises, gold tends to fall. That’s because gold is priced in dollars, and when the dollar gets stronger it becomes more expensive for people in other nations to purchase.
And it was not only the dollar that was causing the havoc. The other factor is concern that US interest rates will remain high for longer than people had hoped. When rates are high, holding gold is much less attractive as gold doesn’t pay interest. So when rate cut hopes wane, money tends to flow out of gold and into everything else. Both of those forces were worked against gold on Thursday at the same time.
Oil Is Making the Problem Worse
The actual story here is oil. Because of the war in the Middle East, prices have been skyrocketing and Iran has now warned the world to get ready for oil to reach $200 a barrel. That is an alarming number. The International Energy Agency moved quickly and announced it would release 400 million barrels of oil from emergency stockpiles to try to avoid prices climbing even higher.
When oil goes up, the cost of almost everything else follows. Fuel prices are up, the freight cost to move goods is more expensive, the cost of making things have gone up. That pushes inflation higher. And the US Federal Reserve does not lower rates when inflation is high. So dollar becomes stronger because no rate cuts are coming. A stronger dollar means it becomes cheaper to sell gold and more expensive to buy. It’s a chain of events, and right now every link in that chain isn’t good for gold.
The Next Big Signal Will Be Friday Data
Focus now shifts to US inflation data due out on Friday. The closely watched number is known as PCE, which stands for personal consumption expenditures. It is the Federal Reserve’s favoured method of assessing how quickly prices are growing throughout the economy. But a Friday reading comes in greater than expected would make rate cuts less likely and could take a little more steam out of gold in the near term.
That said, gold still hovers above $5,150 an ounce which is an extremely high price by any historical standard. And it’s not like people are just totally walking away from gold. There is plenty else going on in the world to get investors anxious, a war in the Middle East, climbing oil prices, new trade tensions after the US opened probes against 16 countries. Gold is having a bad day yet the long term has not altered enough to indicate that a massive turn in selling is on its way. Data out Friday will determine the direction of successive moves.
FAQs
1.Why was gold down on Thursday?Â
Prices of gold fell 0.4% on the day amid a stronger US dollar and receding hopes for interest rate cuts.
2. What’s oil got to do with gold?Â
Higher oil is inflationary, making rate cuts less likely, and keeps the dollar buoyant and gold in their minds a less viable asset to hold.
3. What’s on the radar this week for gold investors?Â
U.S. PCE inflation data is due on Friday and will deliver the clearest signal yet on whether the Federal Reserve could be cutting rates in the near term.
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