Gold prices between oil pressures and Fed expectations - London Business News | Londonlovesbusiness.com

"Rising oil prices not only increase energy costs but also ripple across various sectors of the economy, prompting investors to reassess their expectations for the path of U.S. interest rates. This, in turn, has directly impacted short-term gold performance."

"While gold is traditionally seen as an inflation hedge, market reactions in the short term are often driven by monetary policy channels. When inflation fears rise due to higher oil prices, markets tend to believe that the Federal Reserve may keep interest rates elevated for longer, which increases the attractiveness of yield-bearing assets compared to gold, which offers no yield."

"Many economists expect the Federal Reserve to hold interest rates steady in its upcoming meeting on March 17-18, with the first rate cut potentially delayed until mid-year, perhaps in June or July 2026. If this scenario persists, it implies a relatively constrained monetary environment for longer, limiting gold's ability to post strong short-term gains."

Gold declined nearly 1.5% to trade near $5,075 during Asian trading on Monday, driven by rising oil prices that intensified global inflation concerns. This development reshaped investor expectations regarding U.S. monetary policy, with markets now anticipating the Federal Reserve will maintain elevated interest rates longer than previously expected. The relationship between gold and inflation operates through monetary policy channels rather than linearly. When oil-driven inflation fears emerge, investors expect sustained higher rates, making yield-bearing assets more attractive than non-yielding gold. This dynamic prompted traders to reduce rate-cut bets, supporting Treasury yields and the U.S. dollar while pressuring gold prices. Economists currently expect the Fed to hold rates steady through mid-March, with potential cuts delayed until mid-year 2026.

Read at London Business News | Londonlovesbusiness.com