Gold Holds Gain as Dip-Buying Counters Inflation Fears From War

hw}m7t8[6ut4jw79vkl[s2d6_media_dl_1.png Bloomberg

Article content

(Bloomberg) — Gold held gains on dip-buying even as hostilities in the Middle East pushed oil prices to multiweek highs, rekindling concerns that US inflationary pressure could prompt the Federal Reserve to raise interest rates.

Article content

Bullion was trading around $4,130 an ounce, after rising 3% over the previous two days as dip-buying supported prices. This came as the US and Iran signaled that they aren’t ready to return to the negotiating table after escalating attacks.

Article content

Article content

Article content

Strikes on tankers transiting the Red Sea were also reported, the first since the conflict began in late February and potentially widening it. The waterway has been a vital workaround in particular for Saudi Arabian crude oil blocked behind the Strait of Hormuz. Yemen’s Iran-backed Houthis claimed responsibility. 

Article content

Article content

Traders are now weighing the impact of higher energy prices against soft US economic data as they scan for clues about the Fed’s path for interest rates. Elevated borrowing costs are a headwind for non-yielding bullion. Traders are split on whether or not the Fed will raise interest rates at its meeting next week, with the lack of forward guidance under new chair Kevin Warsh creating more uncertainty. 

Article content

Gold had largely moved in an inverse relationship to treasury yields during the conflict until holding above the $4,000 mark this week, which some traders see as a support level. It is still down by around a fifth since the US and Israel launched strikes on Iran in late February, after a multiyear bull run that had carried the metal to a record high near $5,600 the month before.

Article content

Article content

Gold’s recent upside was “unusual” given the surge in energy prices following the latest flare-ups in the Middle East, Bart Melek, global head of commodity strategy at TD Securities, said in a note. “This rally does not seem to be an aggressive extension of long positions, but is rather driven by short covering and dip buying, after technical supports held during the preceding selloff,” he said.

Article content

The higher-rate environment suggests that gold “may be destined to drop back to support at around $3,900 an ounce,” he said, adding that bullion may face imminent resistance at the $4,200 an ounce level. 

Article content

Spot gold was up 0.1% at $4,133.82 an ounce as of 8 a.m. in Singapore. Silver was stable at $59.75 an ounce. Platinum and palladium edged lower. The Bloomberg Dollar Spot Index, a gauge of the US currency, was flat after ending the earlier session little changed.

Article content