Gold held steady after last week’s sharp decline, amidst the lack of progress in reopening the Strait of Hormuz, which fueled inflation concerns. Bullion prices traded around US$4,516 per ounce, after falling nearly 4% in the week.
Uncertainty stems from the still-unstable negotiations between the US and Iran to end the weeks-long war and reopen Hormuz, a vital artery for global energy flows that remains effectively closed. This situation maintains a risk premium on energy prices and keeps market sentiment defensive.
The rise in oil prices at the start of the week has further heightened concerns that inflationary pressures could persist. If inflation strengthens again, the market considers the likelihood of higher interest rates, a situation that typically weighs on gold as it offers no yield.
Since plunging in the early stages of the conflict, gold has tended to move within a narrow range. Investors are weighing two competing narratives: the risk of inflation, which could keep interest rates high, and the risk of weakening growth, which could ultimately lead to monetary policy easing if the conflict prolongs.
Tensions also remained high following reports of a drone attack on Sunday that sparked a fire at a nuclear plant in the United Arab Emirates, highlighting the fragility of the ceasefire situation in the Middle East. Such developments have the potential to maintain volatility in oil, bonds, and hedge assets.
In the bond market, a global sell-off pushed yields soaring amid concerns that a war-fueled surge in inflation would pressure central banks to raise interest rates. This rise in yields has led some market participants to reduce their positions in gold due to its diminishing relative attractiveness, despite the view that the central bank could turn dovish if growth weakens.
Market participants are now awaiting the Fed’s meeting minutes for clues on the next interest rate direction. At the same time, physical demand dynamics are also being monitored: Indian demand is said to have weakened due to tighter import regulations, while Chinese demand is expected to offset this. At 7:42 a.m. Singapore time, spot gold was recorded up 0.1% at US$4,537.83, while the dollar index remained relatively stable after strengthening last week. (asd)*
Source: Newsmaker.id