THE gold extended losses after its biggest daily drop in nearly two years on easing tensions in the Middle East and signs the U.S. Federal Reserve will keep interest rates higher for longer, curbing demand.
The precious metal fell towards $2,300 an ounce after falling 2.7% on Monday, as concerns that the conflict between Israel and Iran would escalate faded. Tehran played down the impact and significance of Tel Aviv’s recent strike, saying Israel had received the “necessary response at this stage”.
The easing of tensions in the Middle East “has led to some profit-taking and there is likely to be some tactical short selling given the recent rally in gold prices,” Richard Grace, senior currency analyst and international economist at ITC Markets, said in a note. .
Gold still has up about 16% since mid-February, with gains supported by geopolitical risk, central bank purchases and demand from Chinese consumers. The precious metal has risen despite advances in the dollar and government bond yields on signs the Fed will delay its long-awaited pivot.
Traders are now turning their attention to US financial data to be announced this week, including the Fed’s preferred measure of inflation, which may give more clues about the path of monetary policy. Policymakers have become increasingly hawkish on the outlook for interest rates in recent weeks following a string of strong inflation reports.
With markets continuing to temper expectations of monetary easing this year, the precious metal may be forced to reckon with the prospect of a higher – for longer – interest rate environment, a scenario that would typically be a headwind for gold as it doesn’t pay interest.
Spot gold was down 1.1 percent at $2,302.05 an ounce at 11:09 a.m. in Singapore. The Bloomberg Dollar Spot Index was flat. Silver fell, after falling 5.2% in the previous session. Palladium and platinum also fell.
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