World gold prices continuously weakened, recording a three-day consecutive decline in the context of inflationary pressure and tight monetary policy showing no signs of cooling down. This is considered a paradox when the precious metal, which is considered an inflation hedging tool, is being negatively affected by this very factor.
Gold futures prices in the past session decreased by 52.3 USD/ounce, equivalent to 1.13%, to 4,557.3 USD/ounce - the lowest level in April. Compared to the previous peak, gold has "evaporated" more than 230 USD/ounce. Spot gold prices also retreated to around 4,567 USD/ounce, marking the strongest week of decline since March.
The main reason comes from the energy shock when crude oil prices soared nearly 9% due to geopolitical tensions in the Middle East showing no signs of cooling down.
The disruption of the Hormuz Strait - a strategic oil transportation route - has tightened global supply. WTI oil prices exceeded the 100 USD/barrel mark, while Brent oil approached 111 USD/barrel.
Rising energy prices have led to increased inflationary pressure, forcing the US Federal Reserve (Fed) to maintain interest rates at a high level. At the latest meeting, the Fed decided to keep interest rates unchanged in the range of 3.5% - 3.75%. Although not increasing further, the inability to ease policy has made gold - an unprofitable asset - lose its attractiveness.
The strengthening USD along with US bond yields maintained around 4.4% also creates a "double drag" on gold. As the greenback appreciates, the cost of holding gold for international investors becomes more expensive, while high yields increase opportunity costs.
However, the long-term outlook for gold still receives support from major financial institutions. Many banks such as JPMorgan or Goldman Sachs believe that the upward trend has not been broken, thanks to stable buying demand from central banks and the trend of diversifying foreign exchange reserves.
From a technical perspective, the 4,300 - 4,400 USD/ounce zone is considered an important support threshold. If gold prices break through this mark, the market may face deeper correction pressure.
Currently, gold is "stuck" between two pulling forces: one is the long-term story of currency devaluation and safe-haven demand, and the other is the high interest rate environment due to prolonged inflation. Oil price movements and geopolitical situation will be key factors determining the next trend of the precious metal.
