Gold Stabilizes After Gains Amid Expectations of Iran War Path

SadaNews - Gold stabilized after two days of gains, as traders assessed the prospects of reaching a diplomatic solution to the Iran war, even as intermittent clashes threatened to undermine a fragile ceasefire.

Bullion was near $4,715 per ounce, having risen by 1.5% over the previous two sessions.

The White House stated that the United States would hold direct talks with Iran, while Tehran regarded Israeli attacks on Lebanon as a violation of a ceasefire that had only been in effect for a day, continuing to launch strikes in the region. The Strait of Hormuz remained largely closed despite Iran's pledges to ensure safe passage.

Oil rebounded again after its biggest daily drop since April 2020, while stocks advanced and the dollar index fell on Wednesday, supporting gold priced in U.S. currency.

Gold has largely traded in parallel with stocks since the war began about six weeks ago, with some investors losing its appeal as a safe haven and having to cover their losses elsewhere.

Analysts from "Standard Chartered," including Emily Ashford, wrote in a note that "gold's role as a provider of liquidity, rather than as a portfolio diversification tool or safe haven, remains at the forefront." They added: "The recovery appears fragile in the short term," indicating that bullion is likely to find greater support in the physical market.

Inflation and Monetary Policy Determine the Direction

The war, which has entered its second month, has led to rising energy prices and increased inflation risks, raising the likelihood that central banks may delay interest rate cuts or even raise them. This is a negative factor for gold, which does not yield returns and benefits when borrowing costs are low.

Conversely, a prolonged war may also lead to slower growth, which could harm the U.S. labor market and necessitate interest rate cuts.

Minutes from the Federal Reserve's Open Market Committee meeting on March 17 and 18, released on Wednesday, showed policymakers weighing these divergent scenarios for the U.S. economy.

James Luke, senior portfolio manager at "Schroder Investment Management," said: "Once the short-term sell-off ends, gold will gradually find its way up, even if the crisis persists." He added that the metal will continue to receive support from what is known as "currency debasement trade," driven by financial concerns and the need to hedge against the U.S. dollar.

Spot gold fell 0.1% to $4,714.20 an ounce at 11:33 a.m. Singapore time. Silver decreased by 0.3% to $73.93. Platinum and palladium also declined. The Bloomberg Spot Dollar Index rose by 0.1% after ending the previous session down 0.8%.