Gold hits fresh low since March as inflation fears lift hawkish rate bets ahead of US CPI

Gold (XAU/USD) attracts heavy follow-through selling on Wednesday and weakens further below the $4,200 mark, hitting a fresh low since March 23 during the Asian session. Renewed hostilities between the US and Iran fuel inflationary concerns and bolster bets for more hawkish central banks, which, in turn, is seen as a key factor driving flows away from the non-yielding yellow metal. Furthermore, the decline could be attributed to technical selling following the recent breakdown below the very important 200-day Simple Moving Average (SMA).

The US launched self-defence strikes against Iran on Tuesday in retaliation for the downing of a US Apache helicopter in the Strait of Hormuz. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) said it has targeted an airbase in Jordan hosting US forces, as well as Kuwait and Bahrain, and warned of “a more severe response” if the US aggression continues. Furthermore, Iran’s Foreign Minister Abbas Araghchi said that the country’s armed forces would not leave any attack or threat unanswered and warned the US to leave the region or face consequences. This keeps geopolitical risk premiums in play and helps Crude Oil prices to hold above a two-month low, touched the previous day.

According to the CME Group’s FedWatch Tool, traders are assigning nearly a 75% chance that the US Federal Reserve (Fed) will hike interest rates by the end of this year amid concerns about sticky inflation due to elevated energy prices. However, the US Dollar (USD) bulls seem hesitant and opt to wait for the release of the latest US consumer inflation figures before placing fresh bets. The crucial US Consumer Price Index (CPI) report will play a key role in influencing market expectations about the Fed’s policy path, which, in turn, should provide some meaningful impetus to the USD. In the meantime, the fundamental backdrop might continue to exert pressure on the Gold price.