Gold rebounds from over one-month low but inflation fears cap gains

[BENGALURU] Gold prices rose on Tuesday (May 5), rebounding from a more than one-month low hit in the previous session, though gains were limited by elevated oil prices that kept inflation fears alive and clouded the US interest rate outlook.

Spot gold was up 0.5 per cent at US$4,541.39 per ounce, as at 10.30 in Singapore. Bullion fell more than 2 per cent to its lowest level since Mar 31 in the previous session.

US gold futures for June delivery rose 0.4 per cent to US$4,550.70.

“Prices seem to be digesting a bit after the return of the ‘war trade’ across markets sent gold lower on Monday,” said Ilya Spivak, head of global macro at Tastylive

However, gains were capped as “yields and the US dollar pushed higher as a rebound in crude oil stoked inflation fears. That weighed against non-interest-bearing and anti-fiat gold”, Spivak said.

The US dollar rose, and Brent crude oil hovered above US$113 a barrel as the US and Iran continued to work towards a truce while trading blows over the Strait of Hormuz.

A stronger US currency makes US dollar-priced metals more expensive for holders of other currencies.

Meanwhile, higher crude oil prices can stoke inflation, increasing the likelihood of higher interest rates. While gold is considered an inflation hedge, high interest rates make yield-bearing assets more attractive, weighing on its appeal.

Traders are now largely pricing out US Federal Reserve rate cuts for this year, with markets now seeing a 37 per cent chance of a hike by March 2027, compared with 27 per cent expecting a rate cut a week earlier.

SEE ALSO

Gold steady with focus on US Hormuz plan and Iran peace talks

The US and Iran launched new attacks in the Gulf on Monday as they wrestled for control over the Strait of Hormuz with maritime blockades, shaking a fragile truce. The US military said on Monday that it destroyed six Iranian small boats and intercepted Iranian cruise missiles and drones as Tehran sought to thwart a new US naval effort to open shipping through the Strait of Hormuz.

Investors now await a slew of key US data this week, including US job openings, the ADP employment report, and the April payrolls report.

Spot silver edged 0.4 per cent higher to US$73.03 per ounce, platinum gained 1.3 per cent to US$1,970.85, and palladium was up 1.2 per cent at US$1,497.91. REUTERS