Dip Buyers Enter, Gold Rebounds
Gold prices rose on Wednesday, paring some of the previous session's decline, as dip-buying activity surged amid heightened market uncertainty on the fifth day of conflict in the Middle East. This recovery confirms that gold remains a key hedge against heightened geopolitical risks, even though global financial conditions are not entirely supportive.
Gold's rise occurred as the US dollar strengthened and bond yields rose, a combination that typically holds back the precious metal. The strengthening USD and rising yields reflect the market's reassessment of inflation risks, particularly as surging energy prices have the potential to spill over into broader inflation and shift central bank policy expectations.
This surge in inflation risk has led market participants to reduce expectations for aggressive interest rate cuts, while the previous large sell-off in equities has triggered a need for liquidity. In such conditions, some investors often engage in "portfolio risk reduction" and sell assets to cover margin requirements in other instruments—resulting in rapid fluctuations in gold prices.
In terms of positioning, regulatory data indicates that speculative interest in gold is not as high as in previous peak periods, which could limit the risk of further downside should a correction occur. Several analysts believe that investment managers' net-long positions have declined since the beginning of the year compared to their peak, so the "massive" selling pressure is likely to be more limited than during the euphoric phase.
The market also continues to monitor energy supply chain risks, particularly in the Strait of Hormuz, as disruptions to this route have the potential to increase risk premiums on commodities and increase global inflationary pressures. The US government has proposed tanker escorts and insurance/warranty support to calm the market, but industry players question whether these measures are sufficient to quickly restore shipping confidence.
Gold outlook & prediction: In the near term, gold is likely to strengthen as long as geopolitical tensions and the risk of energy disruptions (including the Strait of Hormuz) maintain safe-haven demand. However, gold's rally could be bumpy, as a strengthening dollar and rising yields could limit upside, especially if the market further holds back expectations of interest rate cuts due to the risk of energy inflation. The most likely scenario: gold has the potential to continue its recovery after the correction, but remains volatile, with more aggressive gains expected if the conflict becomes more uncertain and pressure on risk assets persists. (asd)
Source: Newsmaker.id
