Gold Attempts to Recover, Hormuz Guards Against Inflation Risk
Gold prices returned to US$4,600 per ounce on Wednesday, after sliding nearly 2% in the previous session to a one-month low. The decline occurred as the market reassessed inflation risks amid geopolitical uncertainty and unrecovered energy supply lines.
The deadlock in US-Iran peace talks was a major factor holding back the recovery. US President Donald Trump said Iran had asked the US to lift its naval blockade of the Strait of Hormuz during negotiations to end the conflict, as shipping disruptions continued.
The Strait of Hormuz remains a key pressure point as it typically carries about 20% of global oil flows. The prolonged closure has tightened energy supplies from the Middle East and extended risk premiums in the oil market.
The International Energy Agency (IEA) called the disruption the largest supply shock on record. Rising energy prices heighten inflation concerns, especially if transportation and industrial input costs are also pushed up.
However, for gold, this inflation channel has the potential to be two-way. On the one hand, gold is often viewed as a hedge, but on the other hand, persistent inflation risks actually make the market increasingly expect central banks to keep interest rates higher for longer or even tighten further, which typically weighs on gold because it doesn't provide a yield.
Market attention now shifts to this week's central bank agenda. The Bank of Japan has already kept interest rates on hold, while policy decisions from the Fed, ECB, Bank of England, and Bank of Canada will be the next benchmarks for the dollar's direction, yields, and gold's range, amid the latest developments in US-Iran negotiations and the status of the Strait of Hormuz. (asd)
Source: Newsmaker.id
