Gold prices continued to fall on Friday, trading at about $4,134.91 an ounce. This marks a 0.1% drop from the previous session. Earlier in the week, gold prices fell by 0.6%. Rising oil prices have raised inflation fears and complicated the Federal Reserve's interest rate plans.
Energy Prices Impact
Oil prices are near a five-month high due to geopolitical tensions in the Strait of Hormuz. Iran's claim of control over the area has raised concerns about supply disruptions. At the same time, U.S. lawmakers have opposed President Trump's diesel export deal with Russia. These factors have led traders to rethink the Fed's possible actions as it tries to manage inflation.
Fed Rate Outlook
Federal Reserve Chair Kevin Warsh expressed support for keeping interest rates steady before a communications blackout ahead of the central bank's next meeting. This statement has lowered expectations for a quarter-point rate hike. The probability of such a hike is now below 20%, down from as high as two-thirds last month. Still, traders expect a 90% chance of another rate increase by the end of the year. This situation poses challenges for gold, which does not earn interest.
Gold has stayed above $4,100 throughout October, recovering after a more than 6% drop in September. However, it is down about 20% since the start of the U.S.-Iran conflict in late February. Silver prices also fell, dropping by 0.3% to $56.93 an ounce.
Related coverage: Gold Prices Drop Over 3% on Fed Rate Hike Speculation.
The drop in gold prices may affect safe-haven assets and could lead to more volatility in commodities markets. Higher borrowing costs from possible rate hikes will continue to put downward pressure on gold.
Watch for the Federal Reserve's upcoming meeting next week, where more guidance on interest rates is expected.
Based on reporting by: moneycontrol.com, livemint.com