FX.co ★ Gold Pressured by Rate Hike Expectations

Gold hovered around $4,450 an ounce on Thursday and was down nearly 2% for the week, pressured by mounting expectations that central banks may have to raise interest rates to counter an energy-driven inflation shock linked to the conflict in the Middle East. Hopes for a peace agreement dimmed after the US and Iran exchanged strikes, with Bahrain and Kuwait drawn into the crossfire in the most serious escalation since the ceasefire took effect in early April.

The protracted conflict and the near-closure of the strategically vital Strait of Hormuz have kept energy prices elevated, stoking inflation worries and strengthening expectations of tighter monetary policy. In the US, Cleveland Fed President Beth Hammack warned that the Federal Reserve could be forced to increase rates soon if inflationary pressures continue to build. Investors are now turning their attention to Friday’s nonfarm payrolls report for additional guidance on the Fed’s policy trajectory.