Fed warned Wednesday that tariffs will lead to price gains
by Yihui Xie
Gold dropped as an inflation warning from the Federal Reserve, which raised the possibility of fewer US rate cuts, outweighed haven bids due to the situation in the Middle East.
Bullion traded near $3,350 an ounce, after falling 0.6% on Wednesday. The Fed left rates unchanged and policymakers penciled in two cuts by year-end, but Chair Jerome Powell said the central bank’s market committee continued to expect tariffs to work their way into price gains.
Fed policymakers also released new economic forecasts — their first since President Donald Trump’s tariff barrage in April — showing they expect weaker growth, higher inflation and lower employment this year. A significant rise in consumer prices may curtail monetary easing, which would be a negative for gold as it doesn’t pay interest.
That offset support for bullion from war fears in the Middle East, with some US officials said to be preparing for the possibility of a strike on Iran in the coming days. The geopolitical tensions and economic uncertainty have combined with robust buying from central banks and inflows to exchange-traded funds to push gold up almost 30% this year.
Spot gold dropped 0.5% to $3,351.59 an ounce as of 2:21 p.m. in Singapore. The Bloomberg Dollar Spot Index added 0.2%. Silver fell 1%, but remained near the highest since 2012, while palladium also declined.
Platinum pared an earlier surge of more than 2% that saw it reach the highest level in more than a decade. Gains in the metal have been underpinned by a spike in demand and an ongoing market deficit.
“Gold is currently hovering near record highs, which makes further investment vulnerable to changing macroeconomics,” said Priyanka Sachdeva, an analyst at Phillip Nova Pte Ltd. “That’s probably why we are seeing safe-haven flows being redirected to platinum and silver.”
Copyright Bloomberg News
