Gold on Pace for Record Losing Run as War Hurts Longtime Haven

An employee holds one kilogram gold bullions at the YLG Bullion International Co. headquarters in Bangkok, Thailand, on Friday, Dec. 22, 2023. Gold headed for a weekly gain after US price data came in cooler than forecast, reinforcing expectations for multiple interest rate cuts by the Federal Reserve next year. Photo by Chalinee Thirasupa /Bloomberg

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(Bloomberg) — Gold was headed for a record 10th successive daily loss as concerns deepened over the war in the Middle East and its impact on inflation and global growth.

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Bullion fell as much as 2.3% in another volatile session marked by the metal’s inverse relationship with oil. President Donald Trump’s postponement of US attacks on Iran’s power network offered brief respite from gold’s dramatic wartime decline, before an Iranian official ruled out talks and the Wall Street Journal reported that US partners in the Persian Gulf could join the fight.

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High energy prices resulting from the conflict have raised inflationary risks and prompted investors to ditch their relatively liquid and profitable positions in gold for other assets. The precious metal dropped nearly 2% in the previous session for its ninth straight daily decline, and had fallen nearly 17% from the start of the war to Monday’s close. Oil resumed gains on Tuesday.

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Despite the five-day pause announced by Trump, the outcome of any negotiations and future passage of ships through the Strait of Hormuz remain uncertain. Even existing damage to energy infrastructure will take time to rebuild. That means the threat of inflation continues to weigh on gold, as well as the expectation of rate hikes by the US Federal Reserve and other central banks — a headwind for non-yielding precious metals.

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“Gold’s price correction has seen a steeper-than-usual underperformance,” said Suki Cooper, global head of commodities research at Standard Chartered Plc, adding that it is “not unusual for gold to endure downside pressure for four to six weeks following a period of extreme distress, as gold proves to be a liquid asset in times of need.”

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A similar dynamic followed the Russian invasion of Ukraine in early 2022, when an initial spike in the safe-haven commodity was followed by a months-long decline, as an energy price shock rippled through markets and added to inflationary pressures.

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“What you tend to see in a big crisis like this is investors selling heavily positioned, well-performing assets in order to fund margin calls for underperforming assets — equities, bonds, whatever,” said Peter Kinsella, global head of forex strategy at Union Bancaire Privee UBP SA.

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Gold performed in a similar manner in 2022 and during the 2008 global financial crisis, he said. “Short-term shifts in pricing are all about positioning,” he said, adding that long-term drivers hadn’t changed.

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Though bullion has declined over the last few weeks, it had previously been on a prolonged rally underpinned by factors including geopolitical and trade tensions and elevated purchases by central banks. Some countries that have been accumulating bullion are energy importers, so a steeper oil and gas bill resulting from the war means fewer dollars retained to be recycled into gold.