Gold declines further as rising oil prices cloud the Federal Reserve outlook

Gold prices extended their losses on Thursday as investors shifted their attention from softer US inflation figures to the inflationary risks associated with higher oil prices, increasing expectations that the Federal Reserve will maintain a cautious approach to monetary policy.

At 04:42 ET (08:42 GMT), spot gold (XAU/USD) was down 0.7% at US$4,032.37 an ounce, while gold futures fell 0.4% to US$4,037.10. Silver (XAG/USD) lost 1.48% to US$56.92 an ounce and platinum (XPT/USD) declined 1.11% to US$1,659.20.

Softer inflation offers limited support

US producer prices unexpectedly fell by 0.3% in June, compared with expectations for no monthly change, following weaker consumer inflation data released earlier in the week.

The latest figures reinforced the view that underlying inflationary pressures are easing and reduced expectations of an imminent interest rate increase by the Federal Reserve.

However, markets largely looked beyond the historical inflation data as the renewed conflict in the Middle East pushed crude oil prices higher for a fourth consecutive session.

The rise in energy prices has revived concerns that inflation could accelerate again, limiting the Federal Reserve’s ability to lower interest rates despite recent progress in bringing price growth under control.

Federal Reserve officials remain cautious

The uncertainty surrounding future inflation has continued to weigh on gold prices.

Under normal market conditions, weaker inflation would be expected to pressure the US dollar and support bullion by reducing expectations for higher interest rates. Instead, higher oil prices have cast doubt over whether the recent disinflation trend can continue.

Federal Reserve Chair Kevin Warsh reiterated this week that policymakers remain committed to returning inflation to the central bank’s 2% target, while indicating they are prepared to adjust interest rates if price pressures become more persistent. He also dismissed concerns that investment in artificial intelligence alone would trigger broader inflation.

Elsewhere, Federal Reserve Governor Lisa Cook said she would support additional policy action if inflation remained elevated, while New York Fed President John Williams stated that current interest rates are “well positioned” to return inflation to target, highlighting the central bank’s cautious stance.

Oil market remains a key driver

Renewed fighting in the Middle East has continued to influence precious metals markets.

The United States carried out a fifth consecutive day of strikes against Iranian targets, while President Donald Trump pledged to intensify military operations until Tehran stopped attacks on commercial shipping and reopened the Strait of Hormuz.