Gold slumps to 6-month low even as inflation fears rise. Here’s why bullion is out of favor

Gold prices hit a six-month low on Thursday as investors sell off their positions amidst concerns of rising inflation and potential interest rate hikes by the Federal Reserve. August gold futures dropped to $4,046.20 an ounce, marking a 6.3% decline for the week and putting it on track for its worst performance since mid-March.

One of the main drivers behind the recent gold selloff is the growing belief that the Federal Reserve may need to raise interest rates to combat inflation. The ongoing Iran war has pushed energy prices higher, contributing to increased inflationary pressures. Recent data showing a surge in U.S. consumer inflation, coupled with a strong May jobs report, has raised expectations for a potential rate hike by the end of the year.

Technical analysis also points to a bearish outlook for gold, with the metal breaking below its 200-day moving average for the first time in nearly two years. Citigroup has been cautious on gold since the escalation of the Iran conflict, citing higher energy costs and geopolitical uncertainties.

Despite the short-term challenges, Citi remains bullish on gold in the medium to long term. The bank cites global geopolitical fragmentation, sovereign debt concerns, and central bank diversification as factors that could support gold prices in the future.

On the other hand, JPMorgan notes a retreat from the “debasement trade” among retail and institutional investors. Concerns over government deficits, long-term inflation, and geopolitical uncertainties have prompted investors to pull out of gold exchange-traded funds and reduce futures positions.

Overall, the outlook for gold remains uncertain as investors weigh inflationary pressures, interest rate expectations, and geopolitical risks. While short-term volatility may persist, the long-term fundamentals supporting gold as a safe-haven asset and hedge against inflation remain intact.