(Bloomberg) — Gold declined as traders ramped up bets on Federal Reserve monetary tightening after Governor Christopher Waller warned the Iran war’s energy shock could fuel inflation.
Bullion slipped as much as 1.1% as bond yields and the dollar climbed. Waller said he supports making clear the central bank’s next interest-rate move is just as likely to be an increase as a cut, as the energy shock from the Iran war pushes up prices. Traders have now fully priced a quarter-point rate hike by December for the first time. Higher rates typically weigh on gold as it pays no interest.
Waller said his current position is to be patient in holding rates until the war’s impact is clearer, but warned Friday that he wouldn’t rule out a future hike if inflation doesn’t start to slow soon.
Meanwhile, US consumer sentiment fell in May to a record low and long-term inflation expectations worsened notably due to the Middle East conflict. The University of Michigan’s final May sentiment index declined to 44.8 this month from 49.8 in April, according to the survey released Friday. The data also showed consumers expect prices to rise an annualized 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months.
Bullion has traded within a fairly narrow range since falling sharply in the early days of the Iran war, as investors weigh higher rates against the prospect of a high-inflation, low-growth scenario. Bullion is down about 15% since the conflict began in late February.
Spot gold fell 0.8% to $4,506.87 an ounce as of 10:45 a.m. in New York. Silver declined 1.5% to $75.56 an ounce. Platinum and palladium fell. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1%.
–With assistance from Wendy Wells and Jack Ryan.
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