Key facts
- Gold prices are heading for a second weekly loss due to expectations of higher interest rates.
- Persistent inflation concerns are driving the anticipation of U.S. rate hikes.
- Traders are pricing in a 57% chance of a U.S. rate hike by December.
- U.S. producer prices and consumer inflation data exceeded expectations.
- UBS has lowered its gold outlook, predicting near-term pressure on prices.
Gold prices are poised for a second consecutive weekly decline, pressured by the prospect of elevated U.S. interest rates stemming from persistent inflation. Spot gold saw a modest uptick of 0.3% to $4,227.17 per ounce on Friday, but remained down 2.3% for the week, with U.S. gold futures closing up 3% at $4,238.80.
Analysts express skepticism about inflation subsiding quickly, even with potential drops in oil prices. This concern over lingering inflation suggests central banks may maintain higher interest rates, which typically dampens demand for non-yielding assets like gold. Traders are currently pricing in a 57% probability of a Federal Reserve rate hike by December, according to CME FedWatch. Recent data indicated that U.S. producer prices rose more than anticipated in May, and consumer inflation surpassed 4%.
The upcoming Federal Reserve policy meeting on June 16-17, the first under Kevin Warsh, is expected to result in rates holding steady. In light of these factors, UBS has revised its gold forecast downward, cautioning that delayed rate cuts could push prices towards the $3,850-$4,000 per ounce range in the short term.
In other precious metals, spot silver rose 1.2% to $68.14 per ounce and palladium added 0.7% to $1,281.04, both on track for weekly gains. Platinum, however, fell 0.8% to $1,706.90 and was also set for a weekly loss. Separately, Rolex increased the global prices of its gold watches by an average of 5% this month, marking a second price hike this year.