After a 4% Plunge, Gold Begins to Rebound
Gold prices rose after plunging more than 4% in the previous session, as market participants weighed the pressure from a stronger US dollar against renewed demand for safe-haven assets amid escalating conflict in the Middle East.
Gold re-emerged above $5,100 an ounce, driven by dip buying after a four-day rally ended on Tuesday. The dollar index has strengthened by about 1.4% this week, while bond yields have also risen. At the same time, traders have begun to scale back expectations for monetary easing as inflation risks rise due to soaring energy prices.
Widespread selling pressure in the stock market also prompted some investors to liquidate positions on Tuesday to meet margin calls in other portfolio areas. According to Peter Kinsella, Head of Global FX Strategy at Union Bancaire Privée (UBP SA), gold's movement reflects a "portfolio de-risking" pattern that typically occurs during times of conflict. He added that long positions in the gold futures market are considered less crowded, limiting the depth of further declines.
Since the start of the year, gold prices have risen nearly 20% and briefly reached an all-time high above $5,595 per ounce in late January. Demand is supported by a combination of persistent geopolitical and trade tensions, as well as market concerns about the independence of the Federal Reserve.
Markets remain tense as the US-Israel war against Iran continues to spread across the region. Israel reportedly launched a new wave of attacks on Tehran on Tuesday. Israeli media also reported that a building in Qom—associated with a gathering of clerics to discuss the succession of Supreme Leader Ayatollah Ali Khamenei—was targeted, although semi-official Iranian media stated that the building was attacked but not used.
Kinsella believes that gold's recovery is likely to continue as long-term drivers are considered unchanged. In fact, an uncertain outcome of the war could highlight geopolitical risks more than ever—a factor that typically maintains interest in safe-haven assets. However, inflationary risks from the energy boom could potentially limit gold price gains, as it could force the Fed and global central banks to keep interest rates high for longer, or even tighten them again. The market now rates about an 80% chance of the Fed cutting interest rates by more than 25 basis points this year, down from last week's level when the market expected two full rate cuts. High interest rates tend to weigh on non-yielding precious metals.
In an effort to prevent an energy crisis, President Donald Trump said the US would provide naval escorts and insurance protection to ensure the safe passage of tankers and other vessels through the Strait of Hormuz. However, traffic in the strategic waterway, which carries about a fifth of the world's oil and gas flows, has reportedly come to a near standstill due to the war. (Asd)
Source: Newsmaker.id
