Gold heads for biggest weekly drop since June on rate fears
Bullion prices are tumbling as a surging US dollar and renewed US-Iran military strikes drive expectations of prolonged higher interest rates, altering the traditional safe-haven calculus for investors.
Gold is poised for its steepest weekly decline since early June. The precious metal slumped as the US dollar strengthened for a second consecutive session, amplifying the cost of bullion for international buyers.
The selloff accelerated amid a sharp escalation in Middle Eastern hostilities. The US intensified its bombing campaign against Iran, targeting bridges and an airport, while Tehran retaliated with strikes on US bases across the region. Brent crude surged roughly 16% over the week on the back of the attacks.
Normally considered a reliable hedge against rising prices, gold has instead been severely punished by this conflict. Bullion has plummeted about 25% since the US-backed war with Iran began in late February. Markets are pricing in the likelihood that war-fueled inflation will force central banks to keep borrowing costs elevated, a macroeconomic dynamic that inherently crushes non-yielding assets.
"The main drivers of the selloff in gold have been a stronger U.S. dollar and higher global inflation fears, which have sent global interest rates higher," said Chris Gaffney, president of world markets at EverBank. Traders are currently pricing a 58% probability of a US interest rate hike in September, according to the CME FedWatch Tool.
Federal Reserve Vice Chair Philip Jefferson reinforced these expectations on Thursday. He indicated a willingness to raise rates should inflation fail to show near-term improvement. "Recent data have decreased the probability of a rate hike at the next FOMC meeting, but global interest rates continue to climb and the recent increase in oil prices could drive the Federal Reserve to take a more hawkish stance on U.S. interest rate policy," Gaffney added.
Despite the current rout, some major institutions see a shifting demand landscape that could eventually support prices. "Gold's share in private portfolios remains low, and recent geopolitical developments, including Iran and broader tensions, may accelerate diversification beyond central banks to private investors," Goldman Sachs said in a note.
The broader precious metals complex also struggled. Spot silver rose 1% to $56.06, platinum dropped 1.4% to $1,595.64, and palladium held steady at $1,249.63. Despite silver's daily gain, all three metals were on track to post weekly losses.
