Gold Falls as Fed Minutes Reveal Openness to Rate Hikes
Gold prices declined after the Federal Reserve's minutes revealed that most officials are open to raising interest rates if the Iran conflict continues to fuel inflation, boosting the dollar and pressuring bullion.
Gold prices fell on Thursday after the release of the Federal Reserve's latest meeting minutes showed that a majority of policymakers are open to raising interest rates if the ongoing conflict in Iran continues to stoke inflationary pressures. Futures in New York dropped 0.5% as the dollar strengthened on the hawkish tone. The decline extended gold's retreat from recent highs, with spot gold trading near $2,330 an ounce, according to NowPrice's real-time quotes. This move aligns with the typical inverse correlation between gold and the US Dollar Index (DXY), which rose as the minutes reinforced expectations of tighter monetary policy.
The minutes from the Fed's April meeting revealed that officials viewed the Iran war as a key upside risk to inflation, with many noting that further rate hikes could be warranted if price pressures persist. This marks a shift from earlier expectations that the Fed might pause its tightening cycle. For gold traders, higher interest rates increase the opportunity cost of holding non-yielding bullion, while a stronger dollar typically weighs on dollar-denominated gold prices. The real US 10-year yield, which has a strong negative correlation with gold, also moved higher, adding pressure. Central banks have been significant gold buyers since 2022, diversifying reserves away from the dollar, but this demand has been partially offset by weaker jewelry and investment demand in high-price environments. ETF flows, such as those tracked by GLD and IAU, have shown mixed signals, with some outflows as rates rise.
Looking ahead, traders will focus on upcoming US inflation data and any further comments from Fed officials for clues on the rate path. The next major test for gold will be the personal consumption expenditures (PCE) price index release later this month. If inflation remains elevated, the prospect of additional rate hikes could keep gold under pressure in the near term. The COMEX-LBMA spread, which reflects futures versus physical market dynamics, will also be watched for signs of supply tightness. A sustained break below $2,300 could trigger further selling, while any dovish pivot in Fed rhetoric might revive gold's appeal as a hedge against currency debasement.