Listen! The Dollar Wins Over Gold, Here's Why!
Market movements at the start of this week seemed "unusual" to many: geopolitical conflicts usually boost gold, but instead the dollar strengthened while gold was depressed, reaching $5,014 per ounce in Asian trading (March 9th). The key lies in one major trigger that changed the way the market interprets risk: the sharp spike in oil prices.
When oil surged more than 25% in a single day, the market no longer viewed conflict solely as a security risk, but as an economic risk that could directly raise the cost of living and production costs. Energy is a component that quickly transmits to inflation, so the oil surge sparked concerns that price pressures would persist longer than previously expected. This led to a surge in Asian trading (March 9th) when it reached $199.14 per barrel.
From here, the transmission path became clear: rising inflation expectations led the market to believe the Fed's room for interest rate cuts was narrowing, and interest rates could even remain high for longer. When the US interest rate outlook shifts toward "higher for longer," the dollar tends to strengthen as relative US yields become more attractive and demand for safe haven assets flows to the greenback.
Under these conditions, gold can actually come under pressure despite increasing geopolitical uncertainty. There are two reasons: first, gold does not pay interest, so when interest rates and the dollar rise, gold's relative appeal weakens. Second, in the initial phase of market turmoil, investors often seek liquidity, and gold is an asset that is easily sold to raise cash, especially when cross-asset volatility increases.
Geopolitical factors remain the primary driver of uncertainty, including the conflict entering its tenth day and political dynamics in Iran, which are seen as potentially increasing the risk of escalation. However, for gold prices in the short term, the market appears more focused on the economic impact of expensive energy rather than the mere "safe haven" narrative.
The most important variable to monitor going forward is whether oil prices remain high or begin to subside, as this will determine the direction of inflation and interest rate expectations. In addition, market participants will be watching for continued dollar strengthening, the Fed's response to energy-based inflation risks, and conflict developments affecting the stability of global energy supplies—three factors currently key determinants of XAU/USD's direction. (asd)
Source: Newsmaker.id
