Gold heads for weekly drop as inflation fuels rate-hike bets

Gold headed for a modest weekly decline as a war-driven surge in US inflation fueled expectations for higher interest rates.

Bullion fell as much as 1% to near $4 607 an ounce, and is down around 2% since last Friday. US wholesale inflation accelerated to the fastest pace since 2022 in April, while the consumer price index rose the most since 2023. The dollar strengthened and 10-year Treasury yields jumped, negatives for gold, which pays no interest and is priced in the US currency.

The Strait of Hormuz, the vital waterway for energy flows, remains effectively closed with efforts to end the Iran war in limbo, prolonging the energy crisis and keeping inflation concerns high. Oil headed for a weekly gain, with West Texas Intermediate edging toward $102 a barrel on Friday.

“Inflation expectations, higher yields and a stronger dollar are likely to keep gold under pressure in the near term,” ANZ Group Holdings analysts Daniel Hynes and Soni Kumari wrote in a note. ANZ deferred its $6 000 an ounce target to mid-2027 from early next year.

The precious metal has traded in a fairly narrow range since falling sharply in the early days of the war as investors assess inflation risks that could keep rates higher and growth concerns that could prompt monetary easing as the conflict drags on. Bullion is down more than 12% since the war started.

Despite gold’s lackluster performance recently, hedge funds may be adding it to their portfolios in the coming days, Ryan Mckay, a senior commodity strategist at TD Securities, said in a note. “Our pricing scenario continues to point toward CTA length accumulation under essentially all-price path simulation,” he said, referring to commodity trading advisors.

Silver is up around 11% in May, aided by renewed speculative interest in industrial metals. The gold-silver ratio has fallen recently, which some traders view as a sign that the white metal has become relatively cheap.

Silver’s strong price rally looks vulnerable in the near term, the ANZ analysts said in a note. “A persistent market deficit and structural demand should continue to support prices over the medium to longer term,” they said.

India, meanwhile, has further tightened rules for importing gold as it steps up efforts to defend the rupee, days after hiking import duties, weighing on demand sentiment in the world’s second-biggest bullion market.

Spot gold was 1% lower at $4 605.16 an ounce as of 12:44 p.m. in Singapore. Silver declined 2.9% to $81.09. Platinum and palladium also dipped. The Bloomberg Dollar Spot Index was 0.2% higher and is up 0.9% for the week.

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