Gold prices found some stability on Thursday, settling at $4,295.50 an ounce after a significant selloff. However, the precious metal remains under pressure as strong U.S. economic data and rising oil prices have intensified expectations for additional Federal Reserve interest rate hikes. This sentiment has boosted Treasury yields and the dollar, making non-yielding bullion less attractive. The five-year U.S. Treasury yield climbed above 5% for the first time since 2007, and the U.S. dollar held near a two-month high.
Recent economic reports, including S&P Global's flash U.S. Composite PMI Output Index reaching its highest level in over five years, suggest the U.S. economy is resilient. Federal Reserve Governor Michael Barr indicated that further rate increases are likely necessary to bring inflation back to the central bank's 2% target. Swap markets are now pricing in at least three Fed rate hikes by April of next year, a more aggressive outlook than previously anticipated.
Adding to inflation concerns, oil prices rose following Iranian President Masoud Pezeshkian's threats regarding the Strait of Hormuz if sanctions remain. Higher energy prices can contribute to broader inflation, reinforcing the Fed's hawkish stance. Gold has fallen approximately 20% since the U.S.-Iran conflict began in late February. Spot silver also saw a slight decrease, falling 0.2% to $64.31 an ounce.
Analysts note that a sustained rally in gold would require declining real yields, renewed dollar weakness, or evidence that geopolitical stress is impairing risk assets rather than just lifting inflation expectations. The consensus may be too quick to assume that oil-driven inflation is unequivocally bullish for energy equities, as higher fuel costs could lead to a material deterioration in consumer demand or aggressive policy tightening.
