Gold experienced a mixed day as the latest US inflation reports showed a potential easing of price pressures, with the Producer Price Index (PPI) dipping from 6% to 5.5% year-over-year and Core PPI rising from 4.6% to 4.7% year-over-year, both below market estimates. This data initially led to investors cutting expectations for a hawkish Federal Reserve, with money markets reducing anticipated rate hikes from 35 basis points to 22 basis points. The US Dollar Index (DXY) reflected this sentiment, falling 0.5% to 100.42, and the US 10-year Treasury yield dropped nearly four basis points to 4.549%, typically tailwinds for gold.
However, the ongoing escalation of the US-Iran conflict, particularly around the Strait of Hormuz, has significantly impacted gold prices. Renewed US airstrikes against Iran, in response to threats against regional energy exports, have sent oil prices higher, with WTI nearing $80.50. This rise in energy costs fuels concerns about inflation, undermining gold's recovery efforts despite the softer US inflation data. The US also reimposed a naval blockade on Iranian ports, further escalating tensions.
Federal Reserve officials offered mixed signals. New York Fed President John Williams acknowledged solid economic growth but highlighted the "significant risks" posed by the Middle East conflict. Fed Chair Kevin Warsh, while noting that AI contributes to rising prices, downplayed the significance of the latest inflation data, maintaining a hawkish stance on inflation. His comments kept the FXS Fed Sentiment Index at an elevated 127.19, suggesting markets interpret the Fed's policy as firmly anti-inflationary.
As a result, while softer US inflation data provided some initial relief for gold, the persistent geopolitical tensions and the associated rise in oil prices have largely overshadowed these gains. Gold prices slipped to around $4,034 after attempts to test the $4,150 mark were stalled by the conflict. The market continues to view gold as a "sell-on-rise" opportunity due to the interplay of inflation risks from energy prices and the Fed's sustained hawkish outlook.
