Gold Steadies as Traders Digest Uncertainty Over Middle East War

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TL;DR

Gold prices remained stable as traders assessed mixed signals from US officials on the Middle East war, which heightened energy market volatility and inflation concerns, impacting interest rate expectations and ETF holdings.

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Gold was little changed, as traders digested conflicting statements by US officials over the war in the Middle East that added to extreme volatility in energy markets.

A worker uses a cloth to dry a freshly cast gold bullion bar at a precious metal refinery in Balerna, Switzerland. — A worker uses a cloth to dry a freshly cast gold bullion bar at a precious metal refinery in Balerna, Switzerland.
Photographer: Stefan Wermuth/Bloomberg

Gold was little changed, as traders digested conflicting statements by US officials over the war in the Middle East that added to extreme volatility in energy markets.

Bullion was near $5,190 an ounce, having gained 1% in the previous session. The White House said the US had not escorted an oil tanker through the Strait of Hormuz, contradicting a now-deleted social media post by Energy Secretary Chris Wright. Oil prices jumped after plunging on Tuesday.

Now entering its 12th day, the war continues to disrupt crude production and refining across the Middle East. The US and Israel conducted their most intense day of attacks yet against Iran and won’t give up until the Islamic Republic is beaten, the Pentagon said on Tuesday, striking a more aggressive tone after President Donald Trump’s earlier indication that the conflict could end soon.

For gold, the spike in energy prices has increased concerns over inflation, in turn reducing expectations that the Federal Reserve and other central banks will cut interest rates. Higher borrowing costs are a headwind for precious metals, which don’t pay interest. Bullion — which has gained around a fifth this year — is also a source of liquidity used by investors to shore up other parts of their portfolios.

Source: Bloomberg

Note: Bloomberg calculations that exclude some ETF providers

Since war broke out, the volume of gold held by exchange-traded funds has declined. Total holdings fell by nearly 30 tons last week, marking the biggest weekly selloff in more than two years, according to data compiled by Bloomberg.

Traders have also pared the amount of Fed policy easing they expect this year ahead of data due Wednesday that’s projected to show February inflation remained well above the central bank’s target, even before the fighting erupted.

Spot gold edged down 0.1% to $5,188.50 an ounce as of 6:50 a.m. in Singapore. Silver added 0.1% to $88.43. Platinum and palladium traded lower. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1%, reversing a decline in the previous session.