Gold falls below $4,600 an ounce; investors await a possible tightening of Fed policy

The price of gold continued to fall yesterday, on foreign markets, reaching below the $4,600 an ounce threshold, as investors are convinced that shocks to the energy market, generated by geopolitical tensions in the Middle East, will fuel inflationary pressures and will determine the main central banks, including the US Federal Reserve (Fed), to adopt a more aggressive policy. Such an evolution affects the demand for gold, according to fxstreet.com.

The price of gold futures for delivery in June was $4,575.70 an ounce yesterday, on Comex New York, at 08:35 local time, down 1.5% compared to the previous day. The spot price of the yellow metal was, at the same time, $4,567.76 an ounce, down 1%.

US President Donald Trump has announced a plan to guide ships stuck in the Gulf through the Strait of Hormuz, under a project called "Freedom”, and has warned that if this process is disrupted, he will intervene firmly.

For his part, Ebrahim Azizi, an Iranian parliamentarian, said that any US interference in the strategic waterway would be considered a violation of the ceasefire. In addition, Iran's Islamic Revolutionary Guard Corps (IRGC) has accused the US of not respecting the agreements, so the resumption of hostilities is likely. This casts doubt on diplomatic efforts to end the war, amid the lack of progress in peace negotiations between the US and Iran, and is fueling oil prices.

This is in addition to US macroeconomic data published last Thursday, which indicated an acceleration of inflation in March. Minneapolis Fed President Neel Kashkari recently said that a prolonged conflict in Iran increases inflationary risks and economic damage. Kashkari also mentioned the possibility of interest rate hikes, citing uncertainties about all aspects of the war.

The prospect of interest rate hikes supports the US dollar, to the detriment of gold.

• Fed keeps interest rates unchanged, for now

The US Federal Reserve (Fed) maintained, at the end of April, the reference rate at a range between 3.50% and 3.75%, in line with estimates, and drew attention to the elevated risks to inflation, according to Reuters, informs Agerpres.

This was the last monetary policy meeting led by Fed Chairman Jerome Powell, whose mandate ends on May 15. The meeting also saw the most divided decision among the FOMC since 1992. Four of the 12 FOMC members voted against the decision, highlighting the depth of the divisions facing incoming Fed Chair Kevin Warsh. He has promised "regime change” for the central bank and has repeatedly said he will deliver the rate cuts President Donald Trump wants.

"Inflation is elevated, reflecting in part the recent rise in global energy prices. Developments in the Middle East are contributing to heightened uncertainty about the economic outlook,” the Fed said in a statement. This is a change from previous statements that had said inflation was "somewhat” elevated.

In addition to the high inflation, "the unemployment rate has not changed significantly in recent months, as the economy continues to grow at a solid pace,” the Fed said in a statement.

For now, the US unemployment rate remains modest (4.3%), consumption is robust, and inflation is moving further away from the Fed's 2% target.

The next meeting of the Fed's monetary policy committee, which will be held in five weeks, will be chaired by Kevin Warsh.

After enduring months of insults and pressure from the US president, who wants lower interest rates, Powell insisted on the importance of having an independent central bank, impervious to political pressure.

"We simply work for the American people,” Powell said, emphasizing: "We don't say: Oh, I want to do this because the president says it's a good idea or because there's an election coming up and I want to speed up or slow down the economy. The Fed is not bipartisan, it's nonpartisan.”

Earlier this year, Powell took a more direct and forceful swipe at the current administration, announcing that the Attorney General had opened an investigation into him over cost overruns on the renovation of the Fed's Washington headquarters. Powell denounced this as a "pretext" in the "broader context of constant threats and pressure from the government."

Although this investigation was recently closed, Powell explained that he preferred to remain at the Fed as a simple governor (which he can do until the end of 2028).