Gold Prices Fall, Iran Peace Prospects Fading
Gold prices weakened on Thursday (March 26) after US President Donald Trump threatened to escalate military action against Iran following Tehran's rejection of peace talks, signaling that the nearly month-long conflict is not likely to end soon. Bullion fell as much as 2.6% and was trading around $4,400 an ounce at midday in New York, with spot gold down 2.6% to $4,386.96 at 12:31 p.m. local time.
The pressure on gold reflects the transmission of rising energy risks to interest rate expectations. Since the war began, gold has fallen more than 15% and tends to move in tandem with stocks and inversely with oil. Rising energy prices increase inflation risks and encourage markets to consider central banks holding interest rates longer or even raising them, which is a drag on non-yielding assets like gold.
Meanwhile, the market is also weighing the risk of a US economic slowdown if the war drags on. Wall Street has reportedly cut its US growth forecast for this year while raising its inflation and unemployment forecasts, increasing the chances of a recession and potentially limiting the scope for monetary policy tightening.
Position flows indicate increasingly fragile sentiment. Bloomberg calculations indicate that approximately 85 tons of gold holdings in ETFs have been redeemed since the war began. Standard Chartered estimates that even at $4,500 an ounce, there are still 83 tons of losing ETF positions vulnerable to liquidation, amounting to approximately $12 billion based on Wednesday's closing prices. Options activity also indicates increased demand for downside protection, with the price of puts relative to calls rising to a six-year high, including a put transaction worth over $100 million in the largest gold ETF earlier this week.
Additional pressure is coming from physical markets and policy. Turkey's central bank reportedly sold and swapped approximately 60 tons of gold (over $8 billion) in the two weeks after the war broke out. Meanwhile, oil prices rallied on Thursday following Trump's warning, and Iran's parliament began working on a bill to impose fees on ships requesting safe passage through the Strait of Hormuz—an energy chokepoint that has been effectively closed since the war began.
Other precious metals also weakened: silver fell 5.3% to $67.45, while platinum and palladium also declined, amid a slight gain in the Bloomberg spot dollar index.
Source: Newsmaker.id
