Key Points:
- Gold prices recovered slightly after a recent decline.
- Rising oil prices and Mideast conflict fuel inflation concerns.
- The Federal Reserve kept interest rates steady, hinting at only one cut this year.
- Gold’s gains are tempered by a strong dollar and uncertainty around rate cuts.
Gold prices saw a partial recovery after dropping nearly 4% on Wednesday. Buyers stepped in, helping the precious metal withstand surging oil prices and the risk of inflation from the conflict in the Middle East.
Bullion climbed as much as 0.7%, reversing some losses from its longest losing streak since late 2024. The Federal Reserve recently kept interest rates steady and hinted at only one cut this year. Fed Chair Jerome Powell stated that an interest rate reduction would require clear progress in slowing inflation. The ongoing conflict makes the outlook for the U.S. economy “uncertain,” according to Fed officials.
Oil prices rose on Thursday after Iran and Israel exchanged strikes on important energy facilities in the Persian Gulf. Almost three weeks into the conflict, rising crude and gas prices are increasing inflation risks. This makes it less likely that the Fed and other central banks will cut interest rates, which is typically bad for gold since it doesn’t pay interest. A stronger U.S. dollar has also made commodities priced in the dollar more expensive.
Nicholas Frappell, global head of institutional markets at ABC Refinery, noted that a strong dollar and tighter policies from central banks create an “uncertain near-term pathway for gold.” However, he added that if inflation rises faster than interest rates, falling “real” interest rates could help gold in the medium term.
Despite recent struggles, gold is still up about 12% this year. However, its upward momentum has slowed as the chances of a quick rate cut have faded, and some investors sold gold to cover other investment losses. Gold hit a record high above $5,595 an ounce in late January but fell almost 9% from the start of the conflict on February 28 to Wednesday’s close.
Following the latest Fed meeting, Powell also addressed questions about his future at the central bank due to a Department of Justice investigation. He confirmed he has no plans to resign as a governor until the probe is finished. If a successor isn’t confirmed before his term as chair ends in May, Powell stated he would serve as chair pro tempore, a temporary role. The DOJ investigation has raised concerns about political interference at the Fed, which has somewhat eroded trust in U.S. assets and supported gold.
