Gold Rebounds Above $4,300 as Oil Prices Decline
Gold prices have rebounded above $4,300 after a volatile correction, driven by a decline in crude oil prices and a weakening US dollar. The easing of inflationary pressures from lower energy costs has weakened direct support for gold, but the drop in oil prices can also support gold through financial market channels if it leads to declines in yields and the dollar.
David Meagher, Head of Metals Trading at High Ridge Futures, noted that the significant drop in energy prices is alleviating the burden on the gold market caused by inflationary pressures. Investors are focused not only on safe-haven demand but also on whether changes in oil prices can influence US interest rates and the dollar trajectory through inflation expectations.
The primary constraint on the gold market remains US monetary policy, with the Federal Reserve raising its benchmark interest rate to 3.75-4.00% last week. Market strategists point out that higher yields increase the opportunity cost of holding gold, as it generates no interest income. However, they believe that the Fed's hawkish interest rate path is already largely reflected in current asset prices.
The future trajectory of oil prices and US macroeconomic data will be critical in determining whether gold can resume a trend-like rise. If Middle Eastern crude supply gradually recovers and energy prices continue to fall, market inflation expectations may cool further, helping to reduce pressure for further rate hikes. Conversely, if supply recovery falls short of expectations and oil prices rise again, energy costs could push up inflation expectations once more.