Markets in Tense Mode: Oil Leads, Gold Holds, Dollar Waits!
Global markets are again moving in a messy pattern: on one side, Middle East geopolitical shocks, on the other, inflation and interest rate calculations hold them back. This is causing gold, oil, and the dollar to push against each other, rather than moving in a clear direction.
Gold is holding above US$5,000 as it regains its "active" function as a hedge against heightened uncertainty. But its upside potential is less than usual, as the market also sees the threat of inflation from energy, which could actually keep interest rates high for longer.
Oil is at the center of the story. Attacks on energy assets in the Gulf and traffic jams in the Strait of Hormuz maintain risk premiums, while the release of US emergency reserves and signals of additional stocks from the IEA provide counterbalances. As a result, oil prices can rise on supply risks, then fall on expectations of replacement supplies—within a wide daily range.
The dollar is in a unique position: it can benefit from the "risk-off" mode and expectations of high interest rates, but it can also lose steam when tensions ease or when markets perceive inflation is starting to come under control. Currently, the narrative is leaning toward "higher for longer" as the market sees very little chance of a Fed rate cut at this week's meeting.
Inflation is the most sensitive bridge. When oil rises, the market quickly assumes price pressures will persist, thus diminishing expectations of monetary policy easing. At this point, gold finds support as an inflation hedge, but is simultaneously constrained as high interest rates increase the opportunity cost of holding gold.
One detail makes the gold market appear "more resilient": continued strong physical demand and ETF flows in China, as evidenced by the post-Lunar New Year holiday holdings and the Shanghai premium above global prices. This provides a demand floor that helps gold survive even when the interest rate narrative is not entirely benign.
Middle Eastern geopolitics currently operates like a volatility switch. Any news about the condition of Hormuz, threats to infrastructure (including talk of expanding attacks on export facilities), or signals of US-Iranian communication immediately changes the market's assessment of "how much supply is truly lost" and "how long the disruption will last."
The future impact will be largely determined by whether the Hormuz disruption remains tight or begins to ease, as well as how aggressively "balancing" supply, such as reserve releases, actually enters the physical market. If pipelines and supply improve, oil is likely to stabilize, and the dollar could lose some of its risk premium support; gold has the potential to remain strong but more subdued. If, on the other hand, supply risks intensify and inflation becomes more prevalent, oil could again lead volatility, the dollar is likely to strengthen as interest rates are expected to remain high, and gold has the potential to strengthen with a sharp up-and-down pattern, pulled by two forces simultaneously: safe-haven demand and the burden of high interest rates. (asd)
Source: Newsmaker.id
