Rate Rise Forecasts 'Weigh on Gold' as Inflation Pushes Eurozone to Act

The PRICE of GOLD ticked higher against a weaker Dollar on Tuesday, slipping back below last week-end's level for Euro investors as oil prices fell on President Trump's latest promise of peace between Israel and Iran but traders bet that the European Central Bank will raise Eurozone interest rates on Thursday.

With Brent crude slipping today but still 1/3rd higher in Euro terms than before this Middle East war began, the futures market is now putting a 99% likelihood on the ECB raising its deposit facility interest rate by 25 basis points to 2.25% per annum at its June meeting.

Coming as Eurozone consumer-price inflation hits the highest in nearly 3 years at 3.2% per annum, that would reverse the reduction made 12 months ago at the end of a rate-cut cycling which the ECB had begun in spring 2024 by declaring that it would keep interest rates "restrictive" after badly lagging the post-pandemic and Ukraine war inflation surge.

On a 12-month horizon, and adjusted by the 21-nation Euro area's harmonized consumer price index, the ECB's real rate of interest has now fallen without pause since November 2024.

The real price of gold in Euro terms, adjusted by inflation, has risen without pause since September 2023.

That's the longest stretch of unbroken year-on-year gains in the real Euro gold price since global financial crisis' run of 64 months from September 2007 to December 2012.

Adjusted by inflation into current Euro terms, gold last June averaged just below €3000 per troy ounce. So far this month it has averaged €3818.

With traders expecting "no change" from next week's meeting of the US Federal Reserve − now under Trump appointee Kevin Warsh − the Euro rose again on the FX market on Tuesday, now recovering half of Friday's near 1.5-cent plunge versus the Dollar to the lowest in 2 months beneath $1.15.

That put gold in Dollar terms as high as $4350 per troy ounce, some $80 above yesterday's drop to the lowest spot market price since late-March's Iran war crash to $4100.

The UK gold price in Pounds per ounce meantime edged back to £3240, cutting its rebound from Monday's 11-week low to 1.1% as the GBP/USD exchange rate rose back towards the middle of the past 12 months' trading range.

May 2026 saw exchange-traded trust funds backed by gold shrink for the 3rd month so far this year as shareholders liquidated stock.

That cut the gold ETF sector's year-to-date growth to 2.2% by weight with holdings of 4,121 tonnes, a little more than 200 tonnes above this year's record-high expected global mine output, as forecast by specialist consultancy Metals Focus.

"Expectations of higher interest rates alongside a stronger US Dollar are weighing on gold prices," says a note from giant Chinese bank and London bullion clearer ICBC, "which are currently around 18% below pre-war levels."

Today's strength in the Dollar price of gold still left the 'safe haven' metal over $50 per ounce below gold's 200-day moving average, a key 'technical' indicator for many traders, which Friday's price slump breached for the first time since September 2023.

Silver prices meantime rallied to $68.75 per troy ounce, more than $2.50 above yesterday's low and a record high when first reached in December last year.

After this Thursday's universally expected European Central Bank rate rise, traders in ECB Dated €STR Futures also expect another quarter-point rise in July, pricing the odds at nearly 60%, with a third consecutive rise at September's central bank meeting also priced stronger than a 50-50 shot.