Fed Chairman Jerome Powell had already indicated that the pace of rate cuts would slow, reinforcing market expectations for a 25 basis point cut. With inflation still above the Fed’s target and the labor market showing resilience, pressure for aggressive rate cuts has diminished, further weighing on gold.
The strength of the US dollar and rising government bond yields weigh heavily
As the US dollar rose to a seven-week high on stronger employment data, gold’s appeal waned. The dollar index closed at 102.487, marking its best week since September 2022. A stronger dollar makes gold more expensive for foreign buyers, contributing to the metal’s decline.
In addition to the pressure on gold, yields on US government bonds also rose, with the ten-year yield rising to 3.97%. Higher yields make interest-bearing assets more attractive compared to gold, which yields no returns, leading to a further decline in demand for the precious metal.
Geopolitical tensions provide limited support
Despite growing conflict in the Middle East, with tensions escalating between Israel and Iran-backed Hezbollah, gold failed to significantly benefit from safe haven flows. While geopolitical risks generally support gold prices, the strong US dollar and rising interest rates outweighed these concerns.
Analysts, such as Phillip Streible of Blue Line Futures, noted that if the situation in the Middle East deteriorates further, gold could quickly rise to $2,700. However, in the short term, the geopolitical situation has provided only limited support for gold.