M4Markets: Gold Price Hits Over One-Month Low

On March 19, the Federal Reserve kept interest rates unchanged as expected. Coupled with soaring oil prices and inflation uncertainties, gold prices declined for the sixth consecutive trading day, hitting a more than one-month low. Focus is on three core factors: interest rate expectations, geopolitical conflicts, and inflation pressures, which explain the underlying logic behind the weak gold price trend. The current continuous decline in gold prices is primarily due to the dual pressure from high interest rate expectations and inflation concerns. Even with ongoing escalation in Middle East conflicts, safe-haven demand for gold has not effectively increased. In the short term, gold prices still face further downward pressure.

The ongoing escalation of Middle East conflicts should have supported gold prices significantly, but actual safe-haven demand remains limited. Despite the US and Israel continuing attacks on Iran, Iran launching retaliatory strikes, and Israel’s airstrikes killing Iranian security officials, with no signs of easing, gold prices have struggled to stay above $5,000 per ounce this week, failing to serve as a hedge as traditional safe-haven assets do. Meanwhile, after attacks on the world’s largest natural gas field shared by Iran and Qatar, oil prices have remained above $100 per barrel, combined with supply disruptions in the Strait of Hormuz, pushing oil prices to nearly four-year highs and further fueling inflation fears. This inflation concern, in turn, has suppressed gold prices. The Reserve Bank of Australia’s decision to raise interest rates by 25 basis points to 4.10% on Tuesday also confirms this trend. The rate hike was partly driven by rising fuel prices due to Middle East conflicts, which increased inflation expectations and highlighted global central banks’ vigilance against energy-driven inflation.

David Morrison, senior market analyst at Trade Nation, stated that gold previously tried to stay within a narrow trading range but failed multiple times last week to break above the $5,200 resistance level. Currently, bears have gained the upper hand, and the future trend of gold largely depends on whether buyers will step in to support prices during declines. He also noted that market safe-haven demand for gold remains subdued. One reason is that the sharp drop from historic highs at the end of January discouraged many potential buyers. Additionally, at the start of the Iran-Israel conflicts, the US dollar demand surged, coupled with expectations that the Federal Reserve would keep interest rates high for longer, further pressuring gold prices downward. If this situation persists, gold will continue to face headwinds.

The Federal Reserve’s decision to hold interest rates steady was the key trigger for gold prices breaking below critical support and hitting a more than one-month low. As widely expected, the Fed kept the key policy rate in the 3.50%-3.75% range. The updated dot plot from the Federal Open Market Committee (FOMC) showed that due to rising oil prices and slow progress on tariffs, this year’s core PCE inflation outlook has been revised upward. Fed Chair Jerome Powell explicitly stated at the press conference that rising oil prices would be part of the reason for higher inflation expectations, and that oil shocks would be reflected in core inflation. He also acknowledged that policymakers will continue to monitor developments in the Middle East but did not speculate on how long the situation might last. This uncertainty further heightened market concerns about the path of interest rates.

Before the Fed’s decision, the unexpectedly strong February PPI data already put pressure on gold. According to the U.S. Bureau of Labor Statistics, February PPI rose 0.7% month-over-month, well above economists’ forecast of 0.3%, mainly driven by rising service costs. Year-over-year, PPI increased by 3.4%, the highest in a year, with both core PPI month-over-month and year-over-year also exceeding expectations. Strong PPI data reinforced inflation worries and increased market confidence that the Fed would not cut rates in the near term. For a non-yielding asset like gold, a high interest rate environment raises holding costs and suppresses prices.

It is also noteworthy that the Fed’s decision to keep rates steady sets the tone for other major central banks’ rate decisions this week. The Bank of Japan, European Central Bank, Swiss National Bank, and Bank of England will announce their rate decisions in the coming days. Market expectations suggest that, influenced by energy-driven inflation, these central banks may maintain a hawkish monetary stance, further tightening global liquidity conditions and continuing to pressure gold and other precious metals.

Overall, the combination of the Fed’s high interest rates, rising inflation fears, and subdued safe-haven demand has driven gold prices to a more than one-month low, marking the sixth consecutive day of decline. In the short term, gold price movements will mainly depend on developments in the Middle East, oil price fluctuations, and future Fed policy guidance. If inflation expectations further rise and interest rates remain high, gold may continue to test support levels. Conversely, if geopolitical tensions ease and inflation pressures abate, gold could find some short-term support. Investors should remain cautious and manage market volatility risks prudently.