Global gold prices could drop to US$4,200 an ounce in this cycle, translating to a domestic price of around 66,000 baht, as the market has begun pricing in the possibility of a Federal Reserve interest rate hike in the second half of the year amid rising US inflation, says the Gold Traders Association (GTA).
Jitti Tangsithpakdi, president of the GTA, said bullion had fallen by $100 as of midday yesterday to a two-month low of $4,387 an ounce following three consecutive days of declines.
Recent US attacks on Iran pushed oil prices higher, stoking concerns over rising inflation and clouding the interest rate outlook.
"Gold prices dipped as attacks in the Middle East continued, prompting expectations of tighter monetary policy to curb rising inflation," he told the Bangkok Post.
With no clear end in sight to the war in Iran, the market expects energy-driven inflation to prompt the Fed to raise its benchmark interest rate by 25 basis points later this year.
The next Federal Open Market Committee meeting under the leadership of new chair Kevin Warsh is scheduled for mid-June.
"Picked by President Donald Trump to cut borrowing costs, the war in Iran is driving inflation, and Mr Warsh may change his stance on interest rates," Mr Jitti noted.
Higher interest rates can make fixed-income investments more attractive than non-yielding gold, which is commonly used as a hedge against inflation.
The GTA predicts gold could fall to $4,200 an ounce in the near term, pushing domestic gold bar prices down to around 66,000 baht per baht-weight, he said.
Siriluck Pakotiprapha, vice-president of the research department at Hua Seng Heng Futures Co, expressed a more bearish view, noting gold could fall to test a previous low of $4,100 an ounce.
"Bullion could lose further ground, falling below $4,400 after the US military carried out a fresh attack on Iran on Thursday," she told the Bangkok Post.
The new strikes in Iran targeted a military site that officials believed posed a threat to US forces and commercial shipping in the Strait of Hormuz. Oil prices jumped more than 3% yesterday after Iran's Revolutionary Guards said they targeted a US airbase in response to the attack.
Elevated crude prices can accelerate inflation and keep interest rates higher for longer.
Hua Seng Heng, the largest gold trading house in Thailand, said it estimates the next support level for bullion at $4,100.
"If gold cannot withstand the ongoing selling pressure and falls below $4,300 an ounce, we see the previous low of $4,100 as the next support level, bringing the domestic price down to as low as 64,000 baht per baht-weight," Ms Siriluck said.
