Gold prices extended their decline on Thursday and dropped below the important $4,000 level.
Investors largely overlooked softer US inflation figures and instead focused on the risk that rising oil prices could renew inflationary pressure. This uncertainty strengthened expectations that the Federal Reserve will remain cautious about changing interest rates.
Gold and Silver Prices Move Lower
At 09:35 ET, or 13:05 GMT, spot gold fell 1.82% to $3,986.28 per ounce.
US gold futures declined by 1.56% to $3,988.72.
Other precious metals also weakened. Silver dropped 1.7% to $56.78 per ounce, while platinum fell 0.6% to $1,667.20.
Softer US Inflation Reduces Immediate Fed Pressure
US producer prices unexpectedly declined by 0.3% in June.
Economists had expected no monthly change. The data followed a softer consumer inflation report released earlier in the week.
Together, the figures suggested that underlying inflationary pressures were continuing to ease. They also reduced expectations that the Federal Reserve would raise interest rates in the near term.
Rising Oil Prices Complicate the Outlook
Despite the encouraging inflation data, investors remained concerned about the impact of higher energy prices.
Renewed fighting in the Middle East pushed crude oil higher for a fourth consecutive session. The latest escalation raised fears that rising energy costs could eventually affect transport, production, and consumer prices.
This could limit the Federal Reserve’s ability to loosen monetary policy, even if recent inflation reports continue to improve.
Gold Struggles Despite Softer Inflation
Lower inflation would normally support gold by weakening the US dollar and reducing the likelihood of higher interest rates.
However, the renewed oil rally has created uncertainty over whether the recent decline in inflation can continue.
Gold does not offer interest or dividend payments. Therefore, the metal often becomes less attractive when investors expect rates and government bond yields to remain elevated.
Federal Reserve Maintains Cautious Position
Federal Reserve Chair Kevin Warsh said policymakers remained committed to returning inflation to the central bank’s 2% target.
He added that officials were prepared to adjust interest rates if inflation proved more persistent than expected.
Warsh also played down concerns that large investments in artificial intelligence would automatically generate broader inflation across the economy.
Fed Officials Signal Readiness to Act
Federal Reserve Governor Lisa Cook said she would support additional policy action if inflation remained too high.
New York Fed President John Williams said current interest rates were appropriately positioned to guide inflation back towards the central bank’s target.
Their comments reinforced the view that policymakers remain cautious despite the recent improvement in inflation data.
Middle East Conflict Supports Oil Prices
Renewed military activity in the Middle East has kept energy markets under pressure.
The United States carried out strikes against Iranian targets for a fifth consecutive day.
President Donald Trump also said military operations would intensify unless Iran stopped attacking commercial vessels and reopened the Strait of Hormuz.
Strait of Hormuz Risks Remain in Focus
Brent and WTI crude prices continued to rise as traders monitored the threat of supply disruption through the Strait of Hormuz.
The waterway is one of the most important routes for global oil and gas shipments.
Any prolonged restriction could reduce energy supplies and drive prices higher, adding to inflationary pressure across the global economy.
Higher Rates Could Weigh Further on Gold
A sustained increase in oil prices could make the Federal Reserve more reluctant to reduce borrowing costs.
If rates remain high for longer, US Treasury yields and the dollar could strengthen.
That environment would likely reduce demand for gold and make the precious metal more expensive for buyers using other currencies.
Fed’s View of Energy Shock Will Be Crucial
ANZ analysts said the key issue is how the Federal Reserve interprets the latest increase in oil prices.
Policymakers could view the move as a temporary supply disruption with limited long-term effects.
However, if higher energy costs begin spreading into wages, services, and consumer prices, the central bank may maintain restrictive policy for longer than markets currently expect.
