Gold Steadies as Traders Weigh Inflation Risks, Oil-Supply Shock

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(Bloomberg) — Gold traded in a narrow range as traders weighed inflationary risks against attempts to contain an oil-supply shock arising from the war in the Middle East.

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Bullion added as much as 0.5% to hold above $5,000 an ounce, after slipping 0.3% in the previous session. Oil advanced after its first decline in almost a week, as Iran stepped up attacks on energy infrastructure around the Persian Gulf and the US prepared to release the first tranche of emergency crude stockpiles. President Donald Trump appealed for help from other nations to secure the Strait of Hormuz, where transit remains at a near-halt.

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As the US-Israeli war with Iran drags into a third week and higher energy prices drive inflationary fears, prospects have dwindled for the Federal Reserve and other central banks to cut interest rates. Traders see virtually no chance of a reduction at this week’s Fed meeting. Higher borrowing costs typically weigh on precious metals, which don’t pay interest.

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Gold, however, has still gained around 16% this year as geopolitical uncertainty and threats to the Fed’s independence underpin demand for haven assets. Upward momentum has stalled since the war began on Feb. 28 but concerns about stagflation — a combination of slower growth and high inflation — are supportive for gold in the longer term, increasing the metal’s appeal as a store of value.

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Appetite for bullion has remained particularly resilient in China, where investors have added to gold holdings in exchange-traded funds every day since returning from the Lunar New Year break on Feb. 24. In that period, total additions have exceeded 17 billion yuan ($2.5 billion) in value, according to a Bloomberg calculation. Premiums in Shanghai have crept above the global price, a sign of resilient demand.

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“China’s gold demand has held up relatively well in recent weeks,” said Rhona O’Connell, head of market analysis at StoneX Financial Ltd., adding that a stronger Chinese currency had put some pressure on domestic prices.

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Spot gold rose 0.4% to $5,026.75 an ounce at 12:20 p.m. in Singapore. Silver climbed 0.9% to $81.50. Platinum and palladium also gained. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1% after dropping 0.6% on Monday.

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