Gold falls as traders weigh fading rate-cut bets and rising oil

[SINGAPORE] Gold fell for a second day, after the release of US inflation data dimmed prospects for interest-rate cuts and the war in the Middle East pushed oil prices higher.

Bullion retreated as much as 1 per cent in early trading, having lost 0.3 per cent in the previous session. While core US inflation came in tame at the start of the year, before the conflict began, forward-looking inflationary concerns have reduced the likelihood for the Federal Reserve to trim borrowing costs.

A gauge of the US dollar rose as much as 0.3 per cent, while the European Union warned that its inflation could surpass 3 per cent this year.

Gold’s retreat “looks more like a pause, not a surrender”, said Hebe Chen, an analyst at Vantage Markets in Melbourne “Firming price-pressure expectations have revived the US dollar and put near-term Fed easing back in the drawer, briefly crowding out bullion in a market that can only hold one safe haven at a time.”

Now entering its 13th day, the US-Israeli war with Iran continues to disrupt oil production and refining across the Middle East. Crude extended its advance as concerns over a prolonged conflict overshadowed the biggest-ever emergency release of reserves by wealthy nations. As part of this plan, the administration of US President Donald Trump plans to release 172 million barrels for the US Strategic Petroleum Reserve.

As well as enduring the prospect of higher borrowing costs, a headwind for bullion, which does not pay interest, gold is a source of liquidity used by investors to shore up other parts of their portfolios when needed.

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Since war broke out, the volume of gold held by exchange-traded funds has declined – though inflows were recorded on Tuesday after holdings fell last week by the most in more than two years.

Gold has still advanced nearly a fifth this year, gaining some support from its role as a haven in times of geopolitical upheaval, although trading has been choppy and upward momentum has stalled since the war began on Feb 28. “The safe-haven trade isn’t over. It’s just catching its breath,” said Chen.

Spot gold fell 0.9 per cent to US$5,132.76 an ounce as at 8.05 am in Singapore. Silver slid 1.5 per cent to US$84.44. Platinum was down 1 per cent and palladium lost 0.8 per cent. The Bloomberg Dollar Spot Index advanced 0.2 per cent. BLOOMBERG