Gold stays muted as easing inflation dampens expectations for Fed rate reductions

Gold Prices Decline Amid Rising Inflation Concerns

During Thursday's Asian trading session, gold (XAU/USD) continued its downward trend for a second day, hovering near $5,150. The precious metal's value dropped as escalating oil prices fueled worries about inflation and lessened the chances of the Federal Reserve lowering interest rates soon.

Additional pressure on gold came from a strengthening US Dollar and increasing Treasury yields. With inflation expectations on the rise, the likelihood of the Fed easing monetary policy has diminished, and current projections suggest only a single rate cut may occur before year-end. In the short term, gold prices are expected to react sharply to developments in geopolitics, shifts in energy costs, and key economic reports.

Oil prices surged as concerns about a prolonged conflict involving Iran outweighed the impact of a coordinated release of oil reserves by leading economies. Despite the International Energy Agency's (IEA) record-setting release of 400 million barrels, investors considered the measure inadequate to stabilize the market.

The Islamic Revolutionary Guard Corps (IRGC) of Iran announced a joint military operation with Hezbollah targeting locations in Israel, Jordan, and Saudi Arabia. Meanwhile, Bahrain's Interior Ministry reported that Iran attacked fuel storage tanks in Muharraq Governorate, one of the country's main administrative areas.

Market participants anticipate increased volatility in gold prices as they digest the latest US inflation figures. The Consumer Price Index (CPI) for February, published on Wednesday, indicated a 0.3% monthly increase and a 2.4% rise over the past year, closely matching analyst expectations. The core CPI, which omits food and energy costs, climbed 0.2% month-on-month and 2.5% year-on-year. Investors are now looking ahead to Friday's release of US Personal Consumption Expenditures (PCE) data.