Strong dollar, rate fears may weigh on gold prices: Mirae Asset Sharekhan

 

Gold: Erases this year’s gains

Performance

Spot gold steadied on June 11 following a sharp decline in the previous day when it slumped 4.40 per cent to $4,067 -- the lowest since November 24 -- on rate fears due to red-hot US CPI inflation data (May) and escalating tensions between Iran and the US.

 

On June 11, the yellow metal traded between $4,024 and $4,119.

 

Goldhas erased this year’s gains (~30 per cent in January) as it has declined nearly 25 per cent since the Iran war started; the metal is down 5.5 per cent YTD.

At the time of writing this article, it was trading at $4,083, up 0.83 per cent for the day.

 

Data roundup

US PPI final demand surged 6.5 per cent y-o-y in May (estimate 6.4 per cent, prior 5.7 per cent), while it was up 1.1 per cent m-o-m (forecast 0.7 per cent, prior 1.1 per cent); core PPI rose 4.9 per cent y-o-y (estimate 5.4 per cent, prior 4.9 per cent) and was up 0.4 per cent m-o-m (estimate 0.5 per cent, prior 0.7 per cent). Weekly job data were weaker than expected as both continuing and initial jobless claims rose more than expected.

 

The much-awaited US CPI report for May, released on June 10, showed that inflation surged again in May. The annual CPI inflation rate in the US rose to 4.2 per cent (forecast 4.2 per cent, prior 3.8 per cent) in May -- its highest level since April 2023. Headline CPI inflation accelerated for the third consecutive month.

Geopolitics and oil

US–Iran skirmishes threaten the fragile ceasefire as the US military launched strikes against multiple targets in Iran for the second straight day. Iran retaliated by striking Jordan, Bahrain, and Kuwait.

 

President Donald Trump, accusing Iran of dragging out talks on an interim peace deal, said the US would strike Iran very hard on Thursday. He also raised the possibility of seizing Iran’s energy facilities, including Kharg Island, the loading point for around 90 per cent of the country’s crude oil shipments. However, this would require putting US troops on Iranian ground, an option that is unpalatable. At the same time, US and Iran reportedly continue to negotiate with Qatar as a mediator. Iran's negotiator Ghalibaf warned the US of an endless quagmire should it take impulsive decisions. 

Iran said that the Strait of Hormuz was now closed to all vessels, including oil tankers and commercial ships, though the US military contested this claim. 

Crude oil was choppy as it reacted to Iran-related headlines. Brent crude oil spiked 2.5 per cent higher to $95.50 as Trump threatened Iran; however, the counter eased on news that the UAE and Iran held face-to-face talks to de-escalate the situation. 

Yields and dollar

At the time of writing this article, the US Dollar Index was hovering around 100.24, up 0.25 per cent for the day and at its highest since April 3. 

Two-year US yields were steady at 4.14 per cent, while ten-year yields at 4.53 per cent were up 3 bps for the day.

Ten-year yields were above the crucial 4.5 per cent mark for the fifth straight day.

Upcoming data

Major US data on tap in the near term include University of Michigan sentiment and inflation expectations (June 12), along with advance retail sales (June 17). 

Traders will also keep a tab on UK CPI data (June 17) and the UK monthly employment report (June 18).

ETF and COMEX inventory

As of June 11, total known global gold ETF holdings stood at 97.82 MOz, down 1.13 MOz YTD and down 3.02 MOz since the beginning of the Iran war. ETF outflows have gathered pace of late, as ETFs recorded a net outflow of 0.38 MOz in the last three days. 

Registered COMEX inventory at 15.15 MOz is down 37.52 per cent from the April 2026 record peak of 24.25 MOz.   

Central bank watch

As expected, the ECB, in a pre-emptive measure to curb inflationary pressure due to the energy shock from the Iran war, hiked rates by 25 bps to 2.25 per cent on June 11 -- its first hike in nearly 3 years -- as ECB President Lagarde warned of the impact of a prolonged energy shock. The central bank revised its 2026 growth forecast lower from 0.9 per cent to 0.8 per cent, while it hiked its inflation estimate from 2.6 per cent to 3 per cent. Next year’s growth was also revised lower while the inflation estimate was revised higher.

 

The Bank of Canada, in its monetary policy meeting on June 10, left its benchmark rate unchanged at 2.25 per cent as it emphasized weak growth due to exports lagging imports, weaker government spending, a slumping housing market, and weak business investment as reasons for the hold. Canada’s GDP had contracted in the previous two quarters.

 

The Fed’s monetary policy meeting is due on June 17. It will be the first meeting of Kevin Warsh as Fed Chair. Encouraging nonfarm payroll data, strong US ISM data, pickup in JOLTs data, and inflation running well above the Fed’s 2 per cent target are likely to shift the FOMC’s focus from the job market to inflation concerns. Implied overnight rates price in a 25-bps hike by the Fed by year-end; probability of a rate hike in 2027 stands at around 0.60 per cent.

 

The Bank of Japan is expected to hike its benchmark rate from 0.75 per cent to 1 per cent in its monetary policy meeting on June 16. 

The Bank of England is expected to keep rates steady at its MPC meeting on June 18.

World Bank cuts global growth forecast

On June 10, the World Bank cut its global growth forecast for this year from 2.6 per cent in January to 2.5 per cent -- the lowest growth since the Covid-hit 2020 -- as it sees prospects of two-thirds of economies deteriorating due to the Middle East war. The Bank warned that global growth could fall to 1.3 per cent this year if energy supply disruptions prove more severe than assumed and are accompanied by substantial financial stress. It revised China’s growth outlook lower from 4.4 per cent to 4.2 per cent, while US economic growth is seen steady at 2.2 per cent. 

Outlook

A firmer dollar, rate hikes by central banks, ETF outflows, and elevated yields are likely to keep the yellow metal under pressure. China’s demand is not too strong either.

 

It may fall to $3,800/$3,900 in the short run. Resistance is at $4,200/$4,300. While the metal faces tailwinds from a strong US economy and rate hike prospects in the near term, its structural fundamental backdrop remains constructive.  ========================================== 

(Disclaimer: This article is written by Praveen Singh, head of commodities, Mirae Asset Sharekhan. Views expressed are his own.)