TLDR
- Gold fell around 0.4% to trade near $4,699 an ounce on Wednesday
- US consumer prices rose at the fastest pace since 2023 in April, driven by a gasoline price surge linked to the Iran war
- Traders now price roughly a one-in-three chance of a Fed rate hike by year-end, up from near zero last month
- President Trump traveled to China for a summit with Xi Jinping, with the Iran war, trade, and Taiwan on the agenda
- India raised gold import tariffs from 6% to 15% in a surprise move to defend its currency and foreign-exchange reserves
Gold pulled back on Wednesday as fresh US inflation data came in hotter than expected, pushing up the odds that the Federal Reserve could raise interest rates before the end of the year.
Spot gold edged down 0.4% to $4,699.10 per ounce during London morning trading. Gold futures rose slightly, up 0.4% to $4,706.72 an ounce. The metal had already lost 0.4% the session before.
The US consumer price index rose at its fastest pace since 2023 in April. A sharp rise in gasoline prices, driven by the ongoing Iran war, was a key factor behind the increase.
Traders in interest-rate swaps markets now price about a one-in-three chance of a Fed rate hike by year-end. Just a month ago, that chance was priced at nearly zero.
Higher interest rates tend to weigh on gold. The metal pays no yield, so when rates rise, other assets become more attractive by comparison.
US Treasury yields climbed following the inflation report. Analysts at ING described the move as “more re-pricing rather than outright selling,” but warned that risks are building.
“The Fed can’t cut here. And risk assets are pushing the boundaries of positivity,” ING analysts wrote in a note.
Markets are now watching US producer price index data due Wednesday for further signals on inflation and the Fed’s next move.
What the Iran War Means for Gold
The Iran conflict, now more than two months old, has disrupted shipping through the Strait of Hormuz, a critical global oil transit route. That disruption has fueled energy-driven inflation fears worldwide.
Trump said earlier this week that talks with Iran were on “life support” after Tehran rejected a US-backed peace proposal. The comments kept geopolitical uncertainty high and dampened hopes for a near-term ceasefire.
Trump flew to Beijing this week for a summit with Chinese President Xi Jinping. Trade, the Iran war, Taiwan, and global supply chains are all on the agenda.
Analysts have suggested China, a major buyer of Iranian crude, could play a role in brokering a lasting peace deal. However, expectations for a breakthrough at this summit are limited.
Central Bank Demand Keeps Gold Supported
Despite the rate pressure, gold has remained relatively steady. Analysts at JPMorgan Private Bank point to strong central bank buying as a key support factor.
“Gold prices stayed resilient when rates spiked. And it tended to rally when rates declined,” said Yuxuan Tang, Asia head of rates and FX strategy at JPMorgan Private Bank.
She added that central bank demand “supports our view that gold can deliver an uncorrelated return profile.”
Silver, which has gained 17% in May, was little changed at $86.50 an ounce on Wednesday. Platinum and palladium both edged lower.
In a separate development, India raised its gold and silver import tariffs to around 15% from 6%. The move was unexpected and came as India looks to protect its currency and shore up foreign-exchange reserves. India is the world’s second-largest gold consumer.
The US dollar index also firmed on Wednesday, hovering near a one-week high. A stronger dollar can make gold more expensive for overseas buyers, adding further downward pressure on prices.
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