Gold ended higher for the fifth session in a row, marking its longest streak of gains since November. However, the winning streak ended after US inflation came in higher than expected in January.
On Friday morning, gold prices plunged although bullion closed slightly higher in the previous day. On Thursday, the precious metal added less than 0.1%, or $0.80, settling at $1,837.40.
So, the 5-session streak of gains ended. It was gold's longest rally since the 7-session rise in November.
This time, gold is highly unlikely to continue the bull run. Early today, the asset already lost 0.6%.
Ironically, inflation that used to drive gold prices higher became the main reason for the fall.
The January report logged higher-than-expected consumer inflation reading.
In January, the annual inflation rate increased by 0.6% to 7.5%, the high unseen since February 1982.
Given that inflation exceeded the market consensus, the likelihood of a rate hike by the US Fed increased.
Raising interest rates would be the most effective measure to curb inflation right now. Currently, there is a greater chance of a 50 basis points rate hike in March.
Such a possibility would have a negative impact on zero-yield assets such as gold. Vice versa, for instruments that generate interest income, the Fed's aggressive stance will become the main driving force. Among the latter are treasury bonds.
Yesterday, the yield on 10-year US bonds exceeded 2% for the first time in 2.5 years, causing a collapse in gold prices.
At the moment, even a weaker dollar and a tense geopolitical situation cannot provide support for bullion.
On Thursday, Russia and Ukraine announced they had failed to achieve any progress in their relationship during talks with French and German officials.
Meanwhile, the UK said the "most dangerous moment" in the West's standoff with Moscow appeared imminent, as Russia held military exercises with Belarus.
Analysts emphasize that the attractiveness of gold as a hedge against inflation and geopolitical risks is now rather low. Against this backdrop, bearish activity may increase in the near future.
Consequently, gold prices may fall to the key level of $1,800 or even lower in the short and medium term.
This week, gold added 1%, the highest weekly gain since early January.
Starting from Monday, the precious metal grew on expectations of the US inflation report. Some traders bought the asset, hoping that a rise in consumer inflation would not be high enough for the Fed to raise interest rates earlier.
