Gold tumbles below $4,650 as inflation fears and liquidity squeeze weigh

• Gold price remains on the defensive around $4,640 in Friday’s early Asian session. 

• Concerns about inflationary pressure and liquidity squeeze weigh on the Gold price. 

• Escalating tensions in the Middle East could support the safe-haven flows. 

Gold price (XAU/USD) remains under selling pressure near $4,640 during the early Asian session on Friday. The precious metal extends the decline as soaring crude oil and energy prices, driven by the escalating US-Israeli war with Iran, reignite inflation fears. Traders will closely monitor the situation in the Middle East. 

Gold took a breather after the US Federal Reserve (Fed) left interest rates unchanged on Wednesday and expressed concern about the impact of rising oil prices on inflation. Fed Chair Jerome Powell said that the possibility of a rate hike has come up in policy committee discussions. Hawkish remarks from Fed officials lift the US Dollar (USD) and weigh on the USD-denominated commodity price. 

Traders have been selling liquid assets like yellow metal to cover margin calls and raise cash during the broader market volatility. “Global markets have seen broad selloffs as investors search for the quickest assets to sell. Perhaps we are now seeing the next leg of this phase where the perceived safe haven assets are sold to fund purchases of those that may have overreacted to the current situation,” said Paul Surguy, managing director and head of investment management and proposition at Kingswood Group. 

On the other hand, rising geopolitical risks could boost traditional safe-haven assets such as Gold. Iranian Foreign Minister Abbas Araghchi vowed to show “ZERO restraint” if the country’s energy infrastructure were hit again, per Bloomberg. Meanwhile, Saudi Foreign Minister Faisal bin Farhan Al Saud warned that the kingdom’s restraint isn’t "unlimited" and added it could take military action.