TLDR
- Spot gold traded at approximately $5,187 per ounce on Wednesday, maintaining levels well above $5,000
- Oil market rally, fueled by escalating Middle East conflict involving the U.S. and Israel, heightens inflation concerns
- The Strait of Hormuz remains effectively closed, putting 20% of global oil and gas shipments at risk
- February’s U.S. CPI registered 2.4% annually, in line with expectations, though data reflects pre-conflict period
- Fed policymakers expected to maintain current interest rate stance at upcoming March 18 meeting
Gold markets showed minimal movement on Wednesday as competing pressures balanced each other out. Spot gold edged down 0.1% to approximately $5,187 per ounce, while April futures contracts declined 0.9% to roughly $5,194.
The precious metal has experienced significant fluctuations following its approach to nearly $5,600 per ounce in late January. Despite the subsequent retreat, prices continue to hold comfortably above the $5,000 threshold.
The Middle East conflict involving the U.S. and Israel against Iran reached its twelfth day on Wednesday, with aerial operations persisting among all participants. President Trump indicated Monday evening that hostilities were nearing conclusion, yet combat operations continued at elevated levels.
The hostilities have resulted in the practical closure of the Strait of Hormuz, a critical waterway responsible for transporting approximately 20% of global oil and liquefied natural gas shipments.
Oil prices gained ground Wednesday as traders assessed whether the International Energy Agency’s planned release of strategic petroleum reserves could adequately compensate for potential Middle East supply shortfalls.
Rising energy costs are amplifying inflation forecasts. This dynamic weighs on gold by diminishing prospects for Federal Reserve interest rate reductions. Since gold generates no yield, elevated or climbing rates make the metal less appealing to investors.
An appreciating U.S. dollar combined with climbing Treasury yields creates additional headwinds for gold. Dollar strength increases the cost of gold for international purchasers.
U.S. Inflation Data Comes In as Expected
The Labor Department released figures Wednesday showing U.S. consumer prices climbed 2.4% during the twelve-month period ending in February, aligning with both the previous month’s reading and economist projections.
On a monthly basis, prices advanced 0.3%, accelerating from January’s 0.2% increase. Both energy and food categories registered gains. Core CPI, which excludes volatile food and energy components, posted a 2.5% annual rate, unchanged from January.
The February data, however, primarily reflects conditions before the Iran conflict erupted in late February. Market analysts anticipate March statistics will reveal more pronounced inflationary pressures.
Fed Decision and PCE Data Ahead
Market participants are closely monitoring two critical forthcoming releases. The Personal Consumption Expenditures index for January arrives Friday, with forecasters projecting a 3.1% annual reading.
The PCE serves as the Federal Reserve’s primary inflation gauge and has registered higher levels compared to CPI in recent months.
The Federal Reserve’s two-day policy meeting wraps up on March 18. Market consensus points to policymakers maintaining rates at current levels.
Swissquote analyst Carlo Alberto De Casa noted investors seem to be expanding their gold holdings as a protective measure in response to the continuing conflict.
Spot gold stood at $5,187 per ounce during Wednesday’s European trading session.
