Gold Falls as US-Iran Peace Path Remains Unclear
Gold prices fell again in early European trading on Thursday (March 26th) after recovering slightly over the past two sessions, as the market assessed conflicting statements from the United States and Iran regarding the chances of ending the Middle East war. The unclear direction of diplomacy has made market participants cautious about the short-term prospects for the precious metal.
Bullion briefly slumped as much as 2% and fell below US$4,420 per ounce, erasing most of the gains recorded in the previous two days. The White House asserted that talks to end the conflict with Iran were ongoing, but Tehran openly rejected US advances and instead put forward its own conditions. At the same time, Washington has sent thousands of additional troops to the region, sparking concerns about a more risky ground invasion.
Since the outbreak of war nearly a month ago, gold prices have fallen more than 15%. Gold's recent movements have tended to be in line with stocks and inversely related to oil. Sharp increases in energy prices have fueled inflation concerns, leading investors to expect central banks to hold interest rates longer or even raise them. This situation puts pressure on gold, as the precious metal offers no yield.
However, the Fed's potential for a rate hike could also be limited by the risk of a US economic slowdown if the war drags on. Several Wall Street institutions have begun cutting their projections for US economic growth this year, while raising inflation and unemployment estimates and increasing the likelihood of a recession.
Meanwhile, oil prices rose on Thursday after the Iranian parliament began discussing a bill to impose fees on ships seeking safe passage through the Strait of Hormuz. This strategic waterway is crucial for global energy supplies and has been effectively disrupted since the war began. This pressure also weighed on Asian stock markets, which reversed their decline after two days of gains.
Additional pressure also came from outflows from gold-backed exchange-traded funds (ETFs). According to Bloomberg calculations, approximately 85 tons of gold holdings in ETFs have been disposed of since the war began. Standard Chartered analysts assess that the already overcrowded gold market remains vulnerable to further liquidation in the near term.
In afternoon trading in Singapore, the spot gold price fell 1.5% to US$4,437.62 per ounce. Silver also weakened 1.8% to US$69.90, while platinum and palladium also declined. Meanwhile, the Bloomberg Dollar Spot Index was relatively flat. (yds)
Source: Newsmaker.id
