Gold prices retreated from a three-month high after a closely watched US inflation gauge came in warmer than expected, prompting investors to reassess the outlook for interest rates and the US dollar.
The stronger inflation reading raised concerns that the Federal Reserve could face continued pressure to keep monetary policy restrictive for longer. Higher interest rates generally weigh on gold, which does not offer interest or dividend income, while a stronger dollar can also make the precious metal more expensive for overseas buyers.
The pullback followed a strong rally that had pushed gold to its highest level in around three months, supported by expectations of potential interest-rate cuts, geopolitical uncertainty and continued demand for safe-haven assets.
Market participants are now closely watching upcoming US economic data and signals from Federal Reserve officials for further clues on the direction of monetary policy. Any indication that inflation is proving more persistent than expected could strengthen the case for higher-for-longer interest rates, potentially creating additional pressure on gold prices.
Despite the latest retreat, the broader outlook for gold remains influenced by global economic uncertainty, central bank buying, currency movements and expectations surrounding future US interest-rate decisions. Analysts expect the precious metal to remain sensitive to inflation data and changes in expectations for Federal Reserve policy.