Global gold prices are seen under pressure this week as they failed to maintain their upward momentum despite continued geopolitical tensions. The standoff in the Strait of Hormuz has triggered a surge in crude oil prices, with Brent Crude Oil approaching USD110 (RM434.77) per barrel. The rise in energy prices has raised concerns about global inflation, which could remain high for a longer period.
The development has prompted the market to reassess monetary policy expectations, thus reducing the possibility of interest rate easing in the near future. The focus is now back on the Federal Reserve's direction, especially in an inflation environment that has not yet fully subsided.
OCBC strategists Sim Moh Siong and Christopher Wong said that the more "hawkish" reassessment has reduced expectations of a Fed rate cut to just 5 basis points by 2026. This higher interest rate environment usually puts pressure on gold as the opportunity cost of holding non-yielding assets such as the precious metal becomes higher.
“Gold prices fell this week despite high geopolitical tensions. Higher energy prices risk keeping inflation expectations high and potentially delaying the Fed’s easing cycle,” they said.
Overall, for gold to regain strong buying interest, the market needs either a decline in oil prices or signs that geopolitical tensions are starting to ease. This could pave the way for a looser monetary policy approach by the Federal Reserve. For now, inflationary pressures and expectations of persistently high interest rates continue to cloud gold’s near-term outlook.
