Markets incorporated more hawkish Fed policy to be implemented this year into gold prices Tuesday, which edged lower. The current situation in the Middle East is also being closely followed by traders, who have been closely observing the situation, which the United Nations is closely monitoring. Spot gold fell 0.2% to $4,336.21 per ounce by 1:40 p.m. ET, while US gold futures settled 0.2% lower at $4,376.40.
Oil is slightly down, but market analysts are keenly pricing in more rate hikes, even with the market momentum. In the past, a strong dollar has been a bad sign for gold. The CME FedWatch Tool, which tracks traders’ expectations for Fed policy, now calls for a 90% likelihood of another rate increase by December.
The market has clearly shifted its attention to the prospect of soon tightening monetary policy. Fed branch presidents in St. Louis and Chicago recently indicated that they would like the Fed to continue raising rates to quell inflation fueled by robust consumer demand and rising energy costs. The hawkish sentiment comes after the Fed’s interest rate hike last week, where Fed Chairman Kevin Warsh indicated more rate increases in the coming months.
With the US-Israeli war on Iran having erupted in late February, high energy prices have helped fuel high inflation throughout the world’s economy. This has led to central banks around the world to take a hard-line stance on policy, following the advice of organisations such as the International Monetary Fund (IMF). As a result, gold prices have faced significant downward pressure, plummeting by more than 22% from a peak of $5,594.82 per ounce in January. While bullion is usually a good inflation hedge, it generally is not as attractive to yield earning assets in a high interest rate environment.
Meanwhile, oil price slipped to a two-week low on Tuesday as hopes were raised for Gulf supplies. Meanwhile, Iran has recently indicated that it may reopen the Strait of Hormuz within seven days, and Saudi Arabia will be restarting crude exports from the port of Yanbu. The spot price for silver was unchanged at $66.04, while spot prices for platinum rose 1% to $1,816.22 and palladium fell 0.7% to $1,291.69.
