Gold prices retreated on Friday, reflecting pressure from a robust US dollar and sustained high oil prices. Investors weighed the likelihood of further US Federal Reserve rate increases as elevated energy costs heightened inflation concerns.
Spot gold traded 0.47% lower at $4,5220 per ounce by 15:00 local time in Bangkok. June gold futures in the US were also down 0.7%, standing at $4,523 per ounce. The US dollar maintained levels close to its strongest point in six weeks, making dollar-denominated gold less affordable for those holding other currencies.
Analysts pointed to the strengthening dollar as a key factor pushing gold prices downward, attributing the dollar’s rise to persistently high global interest rates.
Bank Indonesia’s decision to raise its benchmark rate by 50 basis points to 5.25% came as a surprise by economists this week. Indonesia’s central bank is the latest among several major financial authorities to tighten monetary policy this week. Earlier, the Reserve Bank of Australia and Norway’s Norges Bank opted for 25-basis-point increases, moves reflecting broader inflation worries as disruptions at the Strait of Hormuz threaten approximately one-fifth of the world’s oil supply.
Oil prices continued their upward trend, with US West Texas Intermediate crude lingering near $98–$99 per barrel and Brent crude close to $105 per barrel. Investors were skeptical about significant progress in US-Iran negotiations, which supported higher oil prices.
Elevated oil prices stoke inflation risks, increasing chances of interest rates staying higher for longer. Consumer inflation in the United States increased more than anticipated in April, with a notable surge in energy prices heightening market concerns about persistent inflationary pressures. The latest reading from the Bureau of Labor Statistics placed annual consumer price growth at 3.8%, exceeding consensus forecasts and marking the fastest rate in nearly three years.
Monthly consumer price index (CPI) rose by 0.6% on a seasonally adjusted basis in April, matching analyst expectations for the month. Annually, the CPI registered a 3.8% increase, slightly outpacing projections and up significantly from March’s 3.3% rate. This marks the steepest annual headline inflation since May 2023.
The combination of rising energy costs and inflation risk has led markets to anticipate extended periods of higher interest rates. While gold typically offers protection against inflation, its appeal can diminish when interest rates rise, since the metal pays no yield.
In April, the Bank of England chose to keep its main rate steady at 3.75%, acknowledging significant challenges from rising energy prices. The European Central Bank announced a halt to earlier plans for rate cuts, raised its inflation outlook, and warned prolonged maritime disruptions could trigger recessions in economies heavily dependent on energy imports.
The U.S. Federal Reserve, meanwhile, left its policy rate unchanged at the 3.50-3.75% range but shifted to a more aggressive stance, with market participants now anticipating a potential rate hike before year’s end to counter persistent inflation.
According to the CME Group’s FedWatch tool, markets are pricing in roughly a 60% chance of the Federal Reserve raising rates before year-end, possibly as early as December.
