Gold prices continued to fall in the trading session on June 24, to the lowest level in nearly two weeks as the USD strengthened and the market increasingly bet on the possibility that the US Federal Reserve (Fed) will raise interest rates many times this year.
As of 2:18 PM Vietnam time, spot gold price decreased by 1.07%, to 4,087.17 USD/ounce, after at one point hitting the lowest level since June 11. Meanwhile, gold futures for August delivery in the US decreased by 1%, to 4,106.30 USD/ounce.
Selling pressure increased in the context that investors continued to assess mixed signals from the negotiation process between the US and Iran.
US President Donald Trump said on June 24 that Iran had agreed to allow nuclear inspections "indefinitely". However, Tehran denied this information and affirmed that there was no such concession in recent negotiations.
The two sides have also not reached a common voice on the mechanism allowing Iran to access blocked funds on foreign accounts, raising doubts about the sustainability of the previous temporary peace agreement.
Mr. Ilya Spivak - Global Macrostrategy Director at Tastylive - said that the current developments reflect the prolonged impacts of the conflict in the Middle East on the financial market.
What we are witnessing is pressure on gold to develop in a direction different from initial expectations. Inflation concerns have shifted to expectations of higher interest rates, leading to falling bonds, rising yields, stronger USD and weaker gold," he said.
Since the conflict between the US, Israel and Iran broke out at the end of February, gold prices have fallen by about 23%.
The main reason is that rising energy prices increase inflationary pressure, forcing the market to adjust expectations about the Fed's monetary policy in a tougher direction.
Although gold is often seen as an inflation hedging tool, this precious metal loses its appeal in a high-interest rate environment because it does not bring yields like bonds or deposits.
Along with that, the USD has risen to its highest level in more than a year, making gold more expensive for investors holding other currencies.
According to the CME FedWatch tool, the market is currently assessing the possibility of the Fed raising interest rates up to three times this year. Before last week's policy meeting, most investors only expected an interest rate hike.
The focus of market attention is currently on the US Personal Consumption Price Index (PCE) data to be released on June 26. This is an inflation measure that the Fed is specifically monitoring and may strongly impact monetary policy expectations in the near future.
Mr. Spivak warned that if inflationary pressure continues to dominate the market and gold prices break through the psychological support threshold of 4,000 USD/ounce, the precious metal may face a deeper drop.
If the price breaks the $4,000/ounce mark, the next target could be $3,800/ounce. After that, the market will even have to discuss the possibility of testing the $3,500/ounce zone," he said.
On other precious metals markets, spot silver prices rose 0.2% to 62.17 USD/ounce. Platinum prices rose 0.1% to 1,652.55 USD/ounce, while palladium edged up 0.1%, to 1,238.34 USD/ounce.
