Gold prices continued to fall in Wednesday's trading session as a series of inflation data hotter than forecast in the US caused expectations of the Fed cutting interest rates this year to weaken significantly.
This precious metal fell to around 4,680 USD/ounce, marking the second consecutive declining session. However, gold prices are still about 47% higher than the same period last year.
Pressure on the gold market appeared after two consecutive US inflation reports. Previously, consumer price index (CPI) data released on Tuesday showed that US inflation in April increased to 3.8% - the highest level since May 2023.
On Wednesday, the production price index (PPI) report continued to exceed market forecasts, recording the strongest monthly increase since the beginning of 2022. High energy prices and escalating trade costs related to the Iranian conflict are considered key factors driving inflation.
After new data, the market continues to readjust monetary policy expectations of the US Federal Reserve (Fed). According to CME Group's FedWatch tool, the possibility of the Fed cutting interest rates in 2026 is currently very low, while the market is starting to raise the probability of the Fed raising interest rates again.
The Fed currently maintains the benchmark interest rate in the range of 3.50% - 3.75%, and investors believe that this agency is likely to continue to maintain a cautious stance if inflationary pressure has not cooled down significantly.
According to analysts, the gold market is clearly reflecting the tug-of-war between the role of inflation hedging assets and the impact from high interest rates.
Although gold is often seen as a tool to preserve value in an inflationary environment, rising interest rates reduce the attractiveness of non-performing assets like gold compared to US government bonds.
The real yield of US anti-inflation bonds is currently still maintained at a high level, continuing to put pressure on gold investment demand in Western markets since the oil price shock related to the Iranian conflict appeared at the beginning of the year.
Besides the inflation factor, the market is also closely monitoring geopolitical and global trade developments.
US President Donald Trump's upcoming visit to China is attracting investment attention to look for new signals related to the fragile trade truce agreement between Washington and Beijing.
Meanwhile, oil prices continued to linger above $100/barrel due to tensions in the Middle East, thereby maintaining global inflationary pressure.
Another factor affecting the market is India's increase in import tariffs on gold and silver from 6% to 15%. Analysts believe that this move could affect the official import demand of the world's leading gold consumer.
Although gold prices adjusted in the short term, many large financial institutions still maintained a positive view on the long-term outlook for the precious metal.
Goldman Sachs forecasts gold prices could rise to $5,400/ounce by the end of the year, while JPMorgan expects gold to reach $6,300/ounce thanks to stable buying power from central banks, concerns about budget deficits and the trend of diversifying foreign exchange reserves outside the USD.
The World Gold Council (WGC) said that central banks are currently still buying about 1,000 tons of gold per year, thereby continuing to create a long-term support base for the market even though gold ETF capital in the West still tends to net sell.
Currently, gold prices are about 16% lower than the historic peak of 5,595 USD/ounce set at the end of January. According to analysts, the next developments of the market will largely depend on the inflation trend and when the Fed changes monetary policy.
