Gold retreats as investors focus on inflation and interest rate expectations

Gold prices fell on Wednesday after rising more than 2% in the previous session, as surging oil prices sparked inflation concerns and added uncertainty to US interest rate expectations, weighing on the non-yielding metal. Spot gold dropped 0.5% to $4,035.67 per ounce, while US August gold futures declined 0.7% to $4,042.20.

Gold had jumped more than 2% to $4,100.49 per ounce on Tuesday, recovering from a two-week low after data showed US consumer price inflation slowed more than expected in June, driven by lower energy prices, according to Reuters.

Oil prices extended their gains for a third consecutive session after US President Donald Trump reimposed a naval blockade on all Iranian ports and threatened to target power plants and bridges the following week unless Tehran resumed negotiations, marking the latest US escalation in the conflict.

Kelvin Wong, a market analyst at OANDA, said: “I believe the market has now moved past the consumer price index data, which is somewhat of a lagging indicator. Trump continues to impose a blockade on ships leaving the Strait of Hormuz, causing oil prices to rise and putting pressure on gold.”

Rising crude oil prices could exacerbate inflation concerns and keep interest rates higher for longer. Although gold is typically viewed as a hedge against inflation, it loses its appeal when interest rates rise, given that it yields no return.