Gold prices fell as the market increased bets that the US Federal Reserve (Fed) would continue to tighten monetary policy after Fed Governor Christopher Waller's tough statement regarding the inflation impact of the Iran conflict.
Gold prices at one point fell by 1.1% amid strong US bond yields and the USD.
Mr. Christopher Waller said he supports the Fed's clear signal that the next move on interest rates could be to increase instead of decreasing, as the energy shock from the Iran war is pushing up price pressure.
According to Mr. Waller, the Fed currently needs to maintain patience to better assess the impact of the war on the economy. However, he also emphasized that he does not rule out the possibility that the Fed will have to raise interest rates if inflation does not cool down soon.
After these statements, the market for the first time fully appreciated the possibility of the Fed increasing by another 25 basis points in December this year.
Higher interest rates often put pressure on gold because this precious metal does not generate profits.
Meanwhile, newly released data shows that consumer confidence in the US continued to weaken sharply in May, and long-term inflation expectations increased significantly due to the impact of the Middle East conflict.
According to the final survey by the University of Michigan, the consumer confidence index fell to 44.8 points in May from 49.8 points in April - a new record low.
The survey also shows that US consumers currently expect prices to increase by an average of 3.9% per year in the next 5-10 years, up from 3.5% last month and the highest level in 7 months.
The gold market is currently still fluctuating in a narrow range since the sharp decline in the early stages of the Iranian conflict when investors continuously weighed between high interest rate pressure and the risk of the economy falling into a state of high inflation accompanied by slow growth.
Since the end of February, gold prices have decreased by about 15%.
In another development, US President Donald Trump emphasized that he wants new Fed Chairman Kevin Warsh to run the central bank independently to ease concerns about the possibility of the White House putting pressure on monetary policy.
Mr. Kevin Warsh – who pledged to carry out the biggest reform in decades at the Fed – was officially sworn in as the 17th Fed Chairman at a ceremony held at the White House on Friday.
