Gold Steady, Stagflation Remains the Narrative
Gold prices moved within a narrow range on Tuesday (March 17th), as market participants balanced inflationary risks from the Middle East war with measures to limit oil supply shocks. Bullion held around US$5,000 per troy ounce, after recording a small decline on Monday.
Oil prices rebounded after their first decline in nearly a week, following Iran's escalating attacks on energy infrastructure around the Persian Gulf and US preparations to release an initial tranche of emergency oil reserves. US President Donald Trump also sought support from other countries to secure the Strait of Hormuz, although Greek Prime Minister Kyriakos Mitsotakis stated that his country and Europe would not participate in military operations near Iran. On the ground, shipping through Hormuz remained nearly halted.
With the US-Israel conflict against Iran entering its third week and higher energy prices fueling inflation concerns, the market views the scope for interest rate cuts by the Federal Reserve and other central banks this year as increasingly limited. Market participants see little chance of a rate cut at this week's Fed meeting. High interest rates are typically a drag on precious metals because they offer no yield.
However, gold has still recorded a gain of around 16% so far this year, supported by geopolitical uncertainty and the issue of the Fed's independence, which has maintained demand for hedge funds. The upward momentum has been restrained since the war began on February 28, but concerns about stagflation—slowing growth amid high inflation—are considered to remain a medium-term support, increasing gold's appeal as a store of value.
UBS believes the market's focus on interest rates is only one factor. Slowing growth, which triggers fiscal and monetary stimulus, could open up room for gold to rise, while heightened geopolitical uncertainty tends to maintain safe-haven demand.
Physical demand is also said to remain strong in China. Investors have added to their gold holdings through ETFs every day since returning from the Lunar New Year holiday on February 24, with the accumulated value exceeding 17 billion yuan. Gold premiums in Shanghai have also moved above global prices, indicating continued solid domestic demand.
At 11:18 a.m. London time, spot gold was at US$5,007.10 per ounce. Silver fell 0.2% to US$80.62, while platinum and palladium gained slightly. The Bloomberg Dollar Index was stable.
Source: Newsmaker.id
