Gold continues decline as inflation fears outweigh hope of end to Iran war
The metal is down nearly 20 per cent from its all-time high in January as investors focus on the Federal Reserve’s plans to combat inflation
Gold extended its downturn despite rising hopes for a diplomatic solution to Middle East tensions, as investors priced in a sticky inflationary trend that is being driven by the continued disruption of energy supplies and the resilience of the US economy.
The price of the precious metal has dropped by more than 4 per cent this month, declining nearly 20 per cent from its all-time high in January. The de-escalation of the US-Israel war on Iran has done little to stem the sell-off, with investors shifting their focus towards the Federal Reserve’s plans to combat inflation.
But while oil prices retreated below US$100 a barrel after the US and Iran went back to the negotiation table, the fallout from the fuel price spike would last longer than expected, according to Stephen Innes, a managing partner at SPI Asset Management. This would also keep inflation at elevated levels and leave the Fed and other global central banks cautious about pivoting to financial easing, he said.
“Oil may have retreated from panic highs, but the transmission mechanism is already moving through the global economy via freight costs, shipping insurance, supply chains, industrial inputs and consumer expectations,” he said. “Inflation was never just about the spot price of crude. The energy shock was like a stone thrown into a lake, with the ripple effects spreading to every corner of the economic system.”
Rates traders have greatly reduced their bets on interest-rate reductions in 2026 and instead expect an increase at some point this year if the resurgence in inflation is not curbed.