Gold Prices Plummet as Fed Focuses on Inflation, Interest Rates

Gold prices have been under pressure since reaching an all-time high of $5,602 per ounce in late January. The Iran war and its aftermath are largely responsible for this decline, as it led to a blockage of the Strait of Hormuz, a major oil chokepoint that handles around 20% of global oil traffic.

When the Strait was blocked, oil prices skyrocketed from under $70 to as high as $119 before falling back down. Although gold prices have since recovered some ground and are currently trading at around $4,040, the recovery looks fragile.

The US Federal Reserve's (FOMC) interest rate decisions also play a significant role in determining gold prices. With inflation emerging as a threat, Fed Chair Kevin Warsh has made it clear that bringing inflation lower is his priority, which means interest rates are likely to be kept higher or even increased.

This is bad news for gold, as higher interest rates make non-yielding assets like gold less attractive to investors. As of today, inflation remains the biggest factor guiding FOMC decisions, and markets have already ruled out any rate cut in the near term.