Higher Energy Prices Diminish Gold's Role as an Inflation Hedge

Spot gold prices fell to US$4,694.30 per ounce, a near one-week low. The decline is driven by the pressure of a stronger dollar and the dampened expectations for US Federal Reserve interest rate cuts this year. This shift in shift in expectations is a result of a surge in energy prices, as oil prices jumped above US$100 a barrel following the US Navy's preparation of a blockade of the Strait of Hormuz. Higher energy prices fuel inflation worries, which limits the scope for monetary easing. Before the war in the Middle East began, traders expected two Fed rate cuts this year. Traders now see little chance of a rate cut this year. Because gold is a non-yielding asset, elevated interest rates weigh on its demand. Spot gold has fallen over 11 per cent since the US-Israel conflict with Iran began on February 28.