Gold weakens as higher oil prices reinforce expectations for elevated U.S. interest rates

Gold prices continued to move lower on Thursday as investors reassessed the outlook for inflation and U.S. monetary policy. While softer-than-expected inflation data earlier in the week initially supported bullion, the recent rise in oil prices has revived concerns that inflationary pressures could persist, encouraging expectations that the Federal Reserve may keep interest rates higher for longer.

Precious metals retreat

At 04:41 ET (08:41 GMT), spot gold (XAU/USD) fell 0.63 percent to 4,027.31 dollars an ounce, while gold futures declined 0.89 percent to 4,033.35 dollars.

Silver (XAG/USD) slipped 0.70 percent to 58.30 dollars an ounce, while platinum (XPT/USD) added 0.34 percent to 1,638.20 dollars.

Inflation data initially supported gold

Gold surrendered part of the gains recorded on Tuesday, when prices climbed more than 2 percent after U.S. inflation came in below expectations.

The June Consumer Price Index showed the first monthly decline in consumer prices since 2020, pushing Treasury yields and the U.S. dollar lower as investors reduced expectations of an immediate Federal Reserve rate increase.

Oil prices complicate the inflation outlook

Attention has now shifted back to energy markets, where crude oil continues to trade near recent highs following renewed geopolitical tensions in the Middle East.

Higher oil prices have renewed concerns that inflation could remain more persistent, making it more difficult for the Federal Reserve to begin easing monetary policy.

Although gold often benefits during periods of inflation uncertainty, higher interest rates and rising bond yields generally reduce the appeal of non-yielding assets such as precious metals.

Markets await more economic data

Federal Reserve officials broadly welcomed the latest moderation in inflation but stressed that additional evidence will be needed before they can conclude that price pressures are returning sustainably to target.

ANZ analysts said:

“Gold could remain rangebound in the near term as expectations for at least one Federal Reserve rate hike this year continue to limit upside.”

They added that buying interest is likely to return if prices weaken further, as the metal’s long-term fundamentals remain supportive.

Investors are now looking ahead to U.S. producer price data for further clues on inflation. According to CME FedWatch, markets currently assign around a 58 percent probability of a Federal Reserve rate increase in September, down from roughly 76 percent before Tuesday’s inflation report.

Gold price