Gold Prices Extend Losses as Inflation Fears Return
Gold prices moved lower again on Thursday as investors focused on the inflation risks created by rising oil prices.
Although recent US inflation figures came in below expectations, renewed conflict in the Middle East raised concerns that higher energy costs could push prices upward again.
These risks strengthened expectations that the Federal Reserve will remain cautious when making future interest-rate decisions.
Spot gold fell 0.74% to approximately $4,030 per ounce. Gold futures declined 0.41% to around $4,035.
Silver dropped 0.89% to $57.27 per ounce, while platinum lost 0.64% to trade near $1,667.
Softer US Inflation Reduces Immediate Fed Pressure
US producer prices unexpectedly fell by 0.3% in June. Economists had expected prices to remain unchanged from the previous month.
The data followed a weaker-than-expected consumer inflation report earlier in the week.
Together, the two reports suggested that underlying inflationary pressure was easing. They also reduced expectations that the Federal Reserve would raise interest rates in the immediate future.
Under normal conditions, softer inflation can support gold by weakening the dollar and reducing the appeal of interest-bearing assets.
Oil Prices Threaten the Disinflation Trend
Despite the encouraging inflation data, investors remained concerned about the recent increase in crude oil prices.
Renewed fighting in the Middle East pushed oil higher for a fourth consecutive session. The rally raised fears that transportation, production, and household energy costs could increase again.
Therefore, traders questioned whether the recent decline in inflation could continue.
Higher energy prices may eventually spread into the wider economy, making it harder for the Federal Reserve to bring inflation back toward its target.
Fed Outlook Keeps Gold Under Pressure
Uncertainty over future monetary policy continued to weigh on gold.
If inflation remains elevated, the Federal Reserve may need to keep interest rates higher for longer. Higher rates usually increase demand for bonds and other yield-producing assets.
Gold does not generate interest. As a result, elevated borrowing costs can reduce its appeal to investors.
Higher rates can also support the US dollar, making gold more expensive for buyers using other currencies.
Kevin Warsh Reaffirms the Fed’s Inflation Target
Federal Reserve Chair Kevin Warsh repeated that policymakers remain committed to returning inflation to the central bank’s 2% target.
He said officials would be prepared to adjust interest rates if inflation proved more persistent than expected.
Warsh also played down concerns that heavy investment in artificial intelligence would automatically create broader inflation across the economy.
Fed Officials Remain Cautious
Other Federal Reserve officials also stressed that the inflation battle was not yet complete.
Fed Governor Lisa Cook said she would support additional policy action if price pressures remained elevated.
New York Fed President John Williams said current interest rates were well positioned to move inflation back toward the central bank’s target.
Their comments suggested that policymakers remain cautious despite the latest improvement in consumer and producer inflation.
Middle East Conflict Drives Oil Higher
Geopolitical tensions continued to influence both energy and precious metal markets.
The United States carried out strikes on Iranian targets for a fifth consecutive day. President Donald Trump also pledged to intensify military operations until Tehran stopped attacking commercial shipping and reopened the Strait of Hormuz.
The strait is a critical route for global oil and gas shipments. Any prolonged disruption could reduce energy supplies and push crude prices higher.
Brent and West Texas Intermediate crude extended their recent gains as traders assessed the risk of further supply interruptions.
Higher Oil Prices Complicate Fed Policy
A sustained oil rally could make the Federal Reserve’s policy decisions more difficult.
Officials must determine whether the rise in energy prices represents a temporary supply shock or the beginning of a wider inflation increase.
If the impact remains limited to oil, the Fed may be willing to look beyond it. However, policymakers could react more aggressively if energy costs spread into wages, services, transportation, and consumer prices.
ANZ said this distinction will be central to the Federal Reserve’s assessment of the inflation outlook.
Until the direction becomes clearer, uncertainty surrounding oil prices, interest rates, Treasury yields, and the US dollar may continue to limit demand for gold.
