Gold Falls as Fed's Waller Flags Rate Hike as Next Move
Gold slipped as much as 1.1% after Fed Governor Waller warned the Iran war's energy shock could fuel inflation, with traders now fully pricing a rate hike by December.
Gold prices fell sharply on Friday after Federal Reserve Governor Christopher Waller warned that the energy shock from the Iran war could stoke inflation, making a rate hike the next likely move. Bullion slipped as much as 1.1% as bond yields and the dollar climbed, with spot gold trading around $2,350 per ounce. The decline was exacerbated by a rise in real US 10-year yields, which typically move inversely to gold prices, and a strengthening of the US Dollar Index (DXY), further pressuring the metal. COMEX gold futures saw increased selling, while the LBMA gold price also adjusted lower, reflecting broad-based bearish sentiment across key trading hubs.
Waller said he supports making clear that the central bank's next interest-rate move is just as likely to be an increase as a cut, given the upward pressure on prices from the conflict. Traders have now fully priced a quarter-point rate hike by December for the first time. Higher rates typically weigh on gold as they increase the opportunity cost of holding non-yielding assets, especially in an environment where central banks globally have been accumulating gold reserves since 2022 to diversify away from dollar-denominated assets. However, this institutional buying has provided a floor under prices, partially offsetting the impact of rising yields. Meanwhile, gold ETFs like GLD and IAU have seen mixed flows, with some investors reducing exposure amid the hawkish shift, while jewelry demand in price-sensitive markets like India and China remains subdued. Live gold prices and charts on NowPrice show how the market is reacting to the shifting rate expectations.
Investors will now focus on upcoming US economic data, including the next jobs report and inflation readings, for further clues on the Fed's path. The trajectory of the Iran conflict and its impact on energy markets will also be closely watched. Any escalation could reinforce the hawkish outlook, while de-escalation might ease rate hike bets. The COMEX-LBMA spread, which widened during the initial selloff, may narrow if physical demand from central banks and long-term investors re-emerges. Additionally, the DXY's inverse correlation with gold will remain a key driver, as a stronger dollar typically caps upside for the metal. A sustained move above $2,400 would require a reversal in real yields or a significant de-escalation in geopolitical tensions.