Federal Reserve Chair Jerome Powell poured cold water on expectations for interest rate cuts this year, citing persistent high inflation. His comments at the Wilson Center on Tuesday weighed on gold prices by bolstering the dollar and Treasury yields.
“Recent data have clearly not given us greater confidence that inflation is coming fully under control. Instead, it indicates achieving that confidence is likely to take longer than expected,” Powell remarked. He left the door open to maintaining the current level of rates “for as long as needed” if elevated inflation persists.
This hawkish stance exerted downward pressure on the non-yielding gold. Spot prices (XAU/USD) dipped to $2,376.95 an ounce early trading on Wednesday, though the precious metal remained supported by simmering Iran-Israel tensions.
Berto Tordecilla
Last week’s Iranian strike on Israeli territory had propelled gold to record peaks as investors sought a safe haven amid fears of an imminent military retaliation from Jerusalem.
While such geopolitical risks typically drive up demand for gold as a hedge, the prospect of higher rates for longer poses a headwind. Rate hike bets for June have been pared back, with traders now pricing in an 80% chance the Fed will stand pat, per CME’s FedWatch tool.
Gold’s overbought status and lack of yield make further gains challenging if inflation persists. However, any escalation in Middle East hostilities could quickly rekindle bullion’s safe-haven appeal.
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