Gold Rebounds From Five-Week Low But Inflation Fears, Strong Dollar Cap Upside

Gold prices edged higher on Tuesday after hitting a five-week low in the previous session, but the rebound remained capped as persistent inflation concerns and a stronger US dollar weighed on sentiment, Reuters reported. 

Spot gold was trading at $4,554.43, up $30.55 or 0.68%, at 09:15 GMT. The metal had fallen more than 2% in the prior session.

US gold futures for June delivery also moved higher, gaining 0.4% to $4,553.10.

“Prices seem to be digesting a bit after the return of the ‘war trade' across markets sent gold lower Monday,” said Ilya Spivak, head of global macro at US-based Tastylive, while speaking to the news agency.

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However, the upside remained limited. “US Treasury yields and the dollar pushed higher as a rebound in crude oil stoked inflation fears. That weighed against non-interest-bearing and anti-fiat gold,” Spivak added.

Reuters reported that the dollar strengthened while Brent crude prices hovered above $113 per barrel amid escalating tensions involving the US and Iran around the Strait of Hormuz, a key global oil transit route. The US military said it destroyed six Iranian small boats and intercepted missiles and drones, underscoring persistent geopolitical risks.

A stronger dollar makes gold more expensive for holders of other currencies, dampening demand. At the same time, elevated oil prices risk fuelling inflation, which could keep interest rates higher for longer.

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While gold is traditionally seen as a hedge against inflation, higher interest rates reduce its appeal since it does not offer any yield compared with interest-bearing assets.

Market expectations have also shifted notably. Traders have largely ruled out US rate cuts this year, with pricing now indicating a 37% probability of a rate hike by March 2027, compared with a 27% chance of a rate reduction just a week ago.

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