Gold Crashes Below $4,200 as Oil Strength Backfires on Hawkish Fed Expectations
Gold prices plummeted on Monday, falling below $4,200 an ounce as rising oil prices and higher US bond yields led investors to believe that the Federal Reserve may maintain its hawkish stance. This unexpected turn of events is contrary to what would normally be expected in such a situation, where gold typically benefits from inflationary pressures.
The recent increase in Brent crude above $106 a barrel, following US President Donald Trump's rejection of an Iranian proposal to reopen the Strait of Hormuz, has kept supply concerns elevated. The Fed's decision to lift its benchmark rate by 25 basis points earlier this month to 3.75%-4.00% has also contributed to the current market dynamics.
According to Barbara Lambrecht, commodity analyst at Commerzbank, the combination of higher oil and policy rates is making it difficult for gold to shine. Higher oil supports the inflation-hedge argument, but higher policy rates increase the opportunity cost of holding an asset that pays no income.