Gold Retains Gains Despite Rising Concerns Over U.S. Interest Rate Hikes

SadaNews Economy - Gold maintained its gains supported by buying on price dips, even as hostilities in the Middle East drove oil prices to their highest levels in weeks, reigniting fears that inflationary pressures in the United States could push the Federal Reserve to raise interest rates.

Gold traded near $4,130 per ounce after rising by 3% over the past two days, as buying on price dips supported the metal. This occurred while both the United States and Iran indicated they were not ready to return to the negotiating table following the escalation of attacks.

Reports also emerged of strikes targeting tankers crossing the Red Sea, marking the first attacks of their kind since the conflict began in late February, potentially expanding its scope. The waterway served as a vital alternative route, especially for Saudi crude oil circumventing the Strait of Hormuz. The Iran-backed Houthi group from Yemen claimed responsibility.

Traders are now assessing the impact of rising energy prices against weak U.S. economic data while looking for clues about the Federal Reserve's interest rate path.

High borrowing costs act as a headwind for gold, which does not yield return. Traders are divided on whether the Federal Reserve will raise interest rates at its meeting next week, as the absence of forward guidance under new Chairman Kevin Warsh adds more uncertainty.

Gold has largely moved in inverse relation to Treasury yields during the conflict, maintaining its level above $4,000 this week, a level that some traders see as supportive.

The precious metal remains down about a fifth since the U.S. and Israel launched strikes against Iran in late February, following a years-long rally that pushed the metal to a record high near $5,600 the previous month.

Bart Melek, global head of commodity strategy at TD Securities, wrote in a note that gold's recent rise was "unusual," considering the sharp rise in energy prices following the recent escalations in the Middle East.

He stated, "This rise does not appear to represent a strong expansion of long positions, but rather is led by short covering and buying on dips, after technical support levels held during the previous selloff."

He added that the high interest rate environment suggests that gold "could be heading for a decline again towards the support level of around $3,900 per ounce," noting that the metal may face imminent resistance at the $4,200 per ounce level.

Spot gold rose by 0.1% to $4,133.82 per ounce by 8 a.m. in Singapore. Silver stabilized at $59.75 per ounce.

Platinum and palladium saw slight declines, while the Bloomberg spot index for the dollar, a measure of the U.S. currency, remained little changed after ending the previous session virtually flat.