Gold Prices Decline as Oil Surge Fuels Inflation Concerns
Gold prices moved lower on Thursday as renewed inflation fears, driven by a sharp rise in oil prices, weighed on market sentiment. Tensions surrounding the conflict involving Iran showed little sign of easing, with the country’s new leader stating that the strategic Strait of Hormuz would remain closed.
In the latest trading session, spot gold (XAU/USD) fell 1.5% to $5,099.82 per ounce, while gold futures declined 1.4% to $5,105.16 per ounce as of 14:44 ET (18:44 GMT).
Oil Prices Surge After Strait of Hormuz Closure
Oil prices climbed sharply after Iran’s new leader, Mojtaba Khamenei, reaffirmed that the Strait of Hormuz would remain closed. The narrow passage is one of the world’s most important energy routes, handling roughly 20% of global oil and gas shipments.
According to the International Energy Agency (IEA), the shutdown of the strait has triggered the largest supply disruption in the history of the global oil market.
Market analysts warn that the spike in oil prices could create a significant inflation shock across the global economy. Brent crude, the global benchmark for oil prices, was trading close to $100 per barrel.
Strong Dollar and Rate Outlook Pressure Gold
Since the Iran-related conflict escalated in late February, gold has remained under pressure, while the U.S. dollar has attracted stronger safe-haven demand. Bullion prices have largely fluctuated within the $5,000 to $5,200 per ounce range.
Central banks, including the U.S. Federal Reserve, may need to reassess the possibility of near-term interest rate cuts if inflation rises due to higher energy costs.
Higher interest rates tend to strengthen the U.S. dollar, as they attract foreign investment. A stronger dollar often weighs on gold prices, making the metal more expensive for international buyers and reducing its traditional safe-haven appeal.
The U.S. Dollar Index was last trading about 0.3% higher.
Investors Await Key U.S. Inflation Data
Beyond geopolitical tensions, investors are also closely watching upcoming U.S. inflation data.
Recent Consumer Price Index (CPI) figures showed inflation remained relatively stable in February compared with the previous month. However, the data did not yet reflect the potential inflationary impact of the recent surge in oil prices.
Markets are now focusing on the Personal Consumption Expenditures (PCE) Price Index, which is expected later this week. The PCE index is the Federal Reserve’s preferred measure of inflation and could significantly influence expectations for future interest rate policy.
Gold Exports Boost U.S. Trade Figures
Separate data released by the U.S. Census Bureau and the Bureau of Economic Analysis showed the U.S. trade deficit narrowed sharply in January, as exports rose to a record level while imports declined.
Total exports increased to $302.1 billion, supported by goods exports of $195.5 billion. A significant part of this growth came from industrial supplies and materials, which rose by $9.1 billion, including $8.8 billion in non-monetary gold and other precious metals.
According to Wells Fargo economist Shannon Grein, fluctuations in gold exports can significantly affect U.S. trade data and may exaggerate changes in the overall trade balance.
Grein noted that when gold-related trade flows are excluded, the improvement in the U.S. trade balance is still present but less pronounced.
She also pointed out that gold was not the only factor behind the increase in exports. Other precious metals also recorded strong growth, rising by more than $4 billion during the same period. Combined, gold and other precious metals accounted for nearly 60% of the monthly export increase.
