On March 19, the Federal Reserve kept interest rates unchanged as expected, while rising oil prices fueled inflation uncertainty, causing gold prices to fall for the sixth consecutive trading day and hit their lowest level in more than a month. The decline in gold prices is driven by three core factors: interest rate expectations, geopolitical conflicts, and inflation pressures. The persistent drop in gold prices is primarily due to the dual pressure from high interest rate expectations and inflation concerns. Even as conflicts in the Middle East escalate, they have failed to effectively boost gold's safe-haven appeal, leaving prices vulnerable to further downside in the near term.

The ongoing escalation of Middle East conflicts should have provided strong support for gold, but actual safe-hemand has been limited. Despite continued attacks by the U.S. and Israel on Iran, retaliatory strikes by Iran, and an Israeli airstrike that killed an Iranian security official—all indicating no signs of de-escalation—gold struggled to hold above $5,000 per ounce this week, failing to act as a traditional hedge. Meanwhile, an attack on the world’s largest natural gas field shared by Iran and Qatar has kept oil prices above $100 per barrel. Combined with supply disruptions in the Strait of Hormuz, oil prices surged to a near four-year high, intensifying market concerns about inflation. Ironically, these inflation worries have further weighed on gold prices. The Reserve Bank of Australia’s decision to raise its benchmark interest rate by 25 basis points to 4.10% on Tuesday—its second hike this year—underscored this trend, citing rising fuel prices from Middle East conflicts as a key driver of inflation expectations and highlighting global central banks' vigilance toward energy-driven inflation.

David Morrison, senior market analyst at Trade Nation, noted that gold had previously tried to hold within a narrow trading range but failed multiple times last week to break above the $5,200 resistance level. Bears are now in control, and the future direction of gold prices will largely depend on whether buyers step in to provide support as prices fall. He also pointed out that weak safe-haven demand for gold stems from two factors: first, the sharp decline from historic highs at the end of January deterred many potential buyers; second, strong demand for the U.S. dollar during initial U.S. and Israeli attacks on Iran, coupled with expectations that the Fed will maintain higher interest rates for longer, has added to downward pressure on gold. Unless these dynamics change, gold will continue to face headwinds.

The Fed’s decision to hold rates steady was the key trigger for gold breaking below critical support levels and hitting a more than one-month low. As widely anticipated, the Fed maintained its key policy rate in the 3.50%-3.75% range. Updated dot-plot projections from the Federal Open Market Committee showed that core PCE inflation expectations for this year have been raised due to surging oil prices and slow progress on tariffs. In a press conference, Fed Chair Powell explicitly stated that rising oil prices would contribute to higher inflation expectations and that oil price shocks would be reflected in core inflation. He also noted that policymakers would continue monitoring developments in the Middle East without speculating on the duration of the situation, adding to market uncertainty about the future path of interest rates.

Even before the Fed’s decision, higher-than-expected February PPI data had set the stage for gold’s weakness. Data from the U.S. Bureau of Labor Statistics showed that PPI rose 0.7% month-on-month in February, far exceeding economists’ expectations of 0.3%, driven mainly by higher service costs. Year-on-year, PPI increased by 3.4%, the highest level in a year, while core PPI also surpassed market expectations both monthly and annually. The strong PPI data reinforced inflation concerns and strengthened market conviction that the Fed will not cut rates in the near term. A high-interest-rate environment increases the opportunity cost of holding non-yielding assets like gold, further suppressing its price.

It is worth noting that the Fed’s steady stance has set the tone for other major central banks’ rate decisions this week. The Bank of Japan, European Central Bank, Swiss National Bank, and Bank of England are all scheduled to announce their policy decisions. Market expectations suggest that, due to energy-driven inflation, these central banks may maintain hawkish monetary policy stances, further tightening global liquidity conditions and sustaining pressure on gold and other precious metals.

In summary, the combination of the Fed maintaining high interest rates, rising inflation concerns, and weak safe-haven demand has driven gold prices to a more than one-month low, marking a sixth straight day of declines. The short-term bearish trend is unlikely to reverse soon. Going forward, gold price movements will largely depend on developments in the Middle East, oil price volatility, and subsequent Fed policy guidance. If inflation expectations rise further and interest rates remain elevated, gold may continue to test lower support levels. If geopolitical tensions ease and inflation pressures moderate, gold could find temporary support. Investors should remain cautious and manage market volatility risks appropriately.