Gold tumbles below $5,100 as oil rally stokes inflation fears, Fed easing bets fade

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Gold price (XAU/USD) falls to around $5,075 during the Asian trading hours on Monday, pressured by a stronger US Dollar (USD) and inflationary risks. Traders will closely monitor the developments surrounding the US-Iran conflicts and geopolitical risks in the Middle East.

Gold price slumps to near $5,075 in Monday’s early Asian session, down 1.52% on the day.
Surging oil prices have fueled fresh inflation fears, causing traders to scale back bets on further easing by the Fed.
A disappointing US February jobs report might help limit the Gold’s losses.

The precious metal faces some selling pressure as a rally in crude oil prices stokes inflation fears in the US, raising the chance that the US Federal Reserve (Fed) will hold interest rates higher for longer. Higher borrowing costs are typically negative for the non-yielding Gold price.

The US central bank is expected to hold rates steady at its upcoming meeting on March 17-18. Many economists anticipate the next rate cut will not occur until June or July 2026.

Fed Governor ‌Christopher Waller said that he thought the rise in oil prices was "more like a one-off event" that would not require a Fed response but also acknowledged the uncertainties if the conflict persists and oil prices keep rising.

On the other hand, the weaker-than-expected US Nonfarm Payrolls (NFP) could weigh on the Greenback and lift the USD-denominated commodity price in the near term. The February jobs report showed a decline of 92,000 payrolls, while the Unemployment Rate rose to 4.4% in February from 4.3% in January.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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