Gold falls as inflation risks outweigh progress in US-Iran talks

[SINGAPORE] Gold fell as inflationary concerns overshadowed early optimism around negotiations to resolve the Iran war.

Bullion slipped as much as 1.2 per cent to below US$4,140 an ounce, erasing a modest gain in the previous session. Higher consumer prices stoked by nearly four months of conflict in the Middle East have raised the likelihood that central banks will hike borrowing costs – a headwind for precious metals, which do not pay interest.

Federal Reserve Bank of Chicago president Austan Goolsbee said on Monday (Jun 22) that he was concerned about inflation and questioned whether all the factors driving prices higher were temporary. “We have been dealing with an inflation problem that’s well above the target and has been going the wrong way,” he said in an interview on American Public Media’s Marketplace radio programme.

Added to that, the hawkish tone adopted by new Fed chair Kevin Warsh has jolted investors and offset the positive impact from an interim US-Iran peace deal signed last week. The US dollar has gained more than 1 per cent since the central bank’s last meeting, a further drag on bullion that’s priced in the US currency.

Gold is down about a fifth since the war began at the end of February, while silver has fallen more than 30 per cent. Traders will be monitoring the price index for US personal consumption expenditures due on Thursday, which are expected to accelerate.

“I’m leaning to the possibility of gold holding in the US$4,000 to US$4,300 range” until more data comes through to “either reshape the monetary outlook or confirm the hawkish tilt”, said Ahmad Assiri, an analyst at Pepperstone Group.

Lending some support to bullion, there were early signs of progress in peace negotiations on Monday when US Vice-President JD Vance said that talks with Teheran were “very, very good”. Iranian officials also cited headway, although plenty of obstacles remain as the two sides look to fulfil the memorandum of understanding signed last week.

Among other things, a communication line between Teheran and Washington was formed with the aim of securing safe passage for vessels through the Strait of Hormuz. The US also issued a 60-day license allowing Iran to sell some oil on the international market.

Crude prices steadied on Tuesday after a decline.

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“The gold and silver markets remain in thrall to external factors and are still reluctant to move either way,” Rhona O’Connell, head of market analysis for EMEA and Asia at StoneX Group, wrote in a note. “The technical positions are not good for either metal, although some flows are improving.”

Spot gold fell 1.2 per cent to US$4,140.95 an ounce at 11.10 am in Singapore. Silver slid 2.8 per cent to US$63.25 an ounce. Platinum and palladium both declined, while the Bloomberg Dollar Spot Index rose marginally. BLOOMBERG