Gold prices dropped below key levels during Asian trading on Wednesday, as investors grew cautious ahead of a highly anticipated Federal Reserve interest rate decision later in the day.
Although gold briefly climbed back above the $5,000 per ounce mark, it quickly reversed direction. Ongoing tensions linked to the U.S.-Israel conflict with Iran have heightened concerns about inflation, keeping market sentiment fragile.
Spot gold declined 0.4% to $4,987.09, while gold futures also slipped 0.4% to $4,990.44 per ounce. Other precious metals followed the downward trend, with silver falling 0.3% and platinum losing 0.6%.
Gold struggles despite geopolitical tensions
Escalating conflict in the Middle East provided only limited safe-haven support for gold. Prices struggled to sustain levels above $5,000 this week, even as military tensions intensified between the U.S., Israel, and Iran.
The situation worsened after an Israeli airstrike reportedly killed Iran’s security chief, Ali Larijani, earlier in the week. Meanwhile, oil prices remained elevated above $100 per barrel, fueling fears of supply disruptions.
Rising energy costs have increased concerns about inflation, especially as disruptions in the Strait of Hormuz—one of the world’s most critical oil shipping routes—continue to impact global supply.
Inflation fears weigh on market outlook
Higher oil prices are raising the risk of energy-driven inflation, which could push central banks toward a more hawkish monetary policy stance. This trend is already visible, with the Reserve Bank of Australia recently raising interest rates and warning of inflationary pressures tied to the conflict.
Fed decision and global central banks in focus
Attention is now firmly on the Federal Reserve’s policy decision, expected later on Wednesday. While the Fed is widely anticipated to keep interest rates unchanged, investors are closely watching for signals on how policymakers view inflation risks and the future rate path.
In addition to the Fed, several major central banks—including the Bank of Japan, European Central Bank, Swiss National Bank, and Bank of England—are scheduled to announce policy decisions this week.
Market expectations suggest that the Fed is unlikely to cut rates before September, according to CME FedWatch data.
Higher rates outlook pressures gold
The prospect of interest rates staying higher for longer typically weighs on gold prices, as it increases the opportunity cost of holding non-yielding assets like bullion.
Although gold remains up on a yearly basis, it has pulled back significantly from its record high near $5,600 per ounce reached in late January.
