Gold prices declined as traders increased bets on Federal Reserve monetary tightening after Governor Christopher Waller warned that the energy shock from the Iran war could fuel inflation, prompting a potential rate hike.
Market Reaction
Bullion slipped as much as 1.1% as bond yields and the dollar climbed. Waller stated he supports making it clear that the central bank's next interest-rate move is just as likely to be an increase as a cut, given the rising prices from the Iran conflict. Traders have now fully priced in a quarter-point rate hike by December for the first time. Higher rates typically weigh on gold, which pays no interest.
Waller's Stance
Waller said his current position is to be patient in holding rates until the war's impact becomes clearer, but he warned on Friday that he would not rule out a future hike if inflation does not start to slow soon.
Consumer Sentiment Drops
Meanwhile, U.S. consumer sentiment fell in May to a record low, and long-term inflation expectations worsened notably due to the Middle East conflict. The University of Michigan's final May sentiment index declined to 44.8 from 49.8 in April, according to the survey released Friday. The data also showed consumers expect prices to rise an annualized 3.9% over the next five to ten years, up from 3.5% in April and the highest in seven months.
Gold's Trading Range
Bullion has traded within a fairly narrow range since falling sharply in the early days of the Iran war, as investors weigh higher rates against the prospect of a high-inflation, low-growth scenario. Bullion is down about 15% since the conflict began in late February.
Price Details
Spot gold fell 0.8% to US$4,506.87 an ounce as of 10:45 a.m. in New York. Silver declined 1.5% to US$75.56 an ounce. Platinum and palladium also fell. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency, rose 0.1%.
