Fed Warns: War, Oil Surge Stoke Inflation Fears

Gold prices saw a slight recovery after a nearly 4% plunge in the prior session. The Federal Reserve has warned that escalating Middle East tensions and rising energy costs could exacerbate inflation.

Bullion hovered near $4,835 an ounce, marking its sixth straight day of losses, the longest decline since late 2024. The Fed recently maintained its interest rates and anticipates one reduction this year, contingent on progress in curbing inflation. Officials noted that the ongoing conflict introduces uncertainty for the US economy.

Meanwhile, oil prices climbed following exchanges between Iran and Israel impacting key energy infrastructure in the Persian Gulf. This surge in energy costs intensifies inflationary pressures, diminishing the likelihood of interest rate cuts by major central banks, which negatively impacts gold as it yields no interest.

Despite its 12% gain this year, gold's upward momentum has stalled as near-term rate cut expectations faded, and some investors liquidated holdings for margin calls. Gold had previously reached an all-time high above $5,595 an ounce in late January.

Federal Reserve Chair Jerome Powell also addressed a Department of Justice investigation, stating he has no plans to resign. If a successor isn't confirmed before his term as chair ends in May, he indicated he would serve as chair pro tempore. The DOJ probe has already raised concerns about political interference with the Fed and eroded trust in US assets, paradoxically bolstering gold.