Gold prices fell as OPEC cut oil targets, increasing inflation risks and the likelihood of a Fed rate hike.
Gold prices fell on Monday after OPEC+ announced a cut to oil output, causing inflation concerns and raising the possibility of an interest rate hike at the upcoming May meeting of the US Federal Reserve. Spot gold dropped 0.6% to $1,956.89 per ounce, while US gold futures declined 0.7% to $1,971.30. The opportunity cost of holding non-yielding bullion increases when interest rates are raised to control inflation. Gold’s status as a safe-haven asset is being weighed against the potential for higher interest rates, according to Matt Simpson, senior market analyst at City Index.
Oil prices surged after Saudi Arabia and other OPEC+ oil producers announced a round of output cuts, a potentially ominous sign for global inflation just days after a slowdown in US price data had boosted market optimism.
US consumer spending rose moderately in February and showed signs of cooling, even though it remained elevated.
“Gold is now vulnerable to a move down to $1,900, given the potential for a higher terminal Fed rate that markets are currently pricing in,” Simpson added.
Markets now see a 60.9 percent chance of the Fed hiking rates by a quarter point in May which, in turn, has lifted the US dollar and Treasury yields.
ANZ, in a note, observed gold’s “safe-haven demand easing as the US banking turmoil eased.”
Bullion had risen by nearly 8 percent last quarter after the recent global banking turmoil drove bets that the Fed would tone down its rate hike approach.
Standard Chartered analyst Suki Cooper said in a note that gold buying by central banks might “not be as strong as it was in 2022.”
Spot silver slipped 1.6 percent to $23.69 per ounce, platinum lost 0.5 percent to $986.83, and palladium fell 0.4 percent to $1,455.16.