Gold prices rose after information emerged that the International Energy Agency (IEA) is proposing the largest oil inventory release ever to reduce the supply shock caused by the war in the Middle East.
The precious metal has surpassed the $5,200/ounce mark after increasing by 1% in the previous session. The IEA's proposal, as reported by the Wall Street Journal, is expected to release more oil than the 182 million barrels released after Russia attacked Ukraine in 2022. Crude oil prices abandoned previous gains, while an index measuring the strength of the USD fell by 0.1%.
As the war between the US and Israel with Iran enters its 12th day, investors are also receiving conflicting messages from US officials. The White House said that the US has not escorted any oil tankers through the Strait of Hormuz, contrary to a social media post by Energy Secretary Chris Wright that was later deleted. Transportation through this route is almost stalled, although this is a corridor that transports about one-fifth of the world's oil and liquefied natural gas.
For the gold market, strong fluctuations in energy prices have increased concerns about inflation, thereby reducing expectations that the US Federal Reserve (Fed) and other central banks will be able to cut interest rates. Higher borrowing costs are often detrimental to the precious metal because gold is not profitable. However, gold, which has increased by about one-fifth since the beginning of the year, is also used by investors as a source of liquidity to support other parts of the investment portfolio.
Mr. David Wilson - Commodity Strategy Director at BNP Paribas SA - said that last week the precious metal was partly under pressure from the strengthening USD and the weakening US stock market, as gold was sold to meet margin requirements in the stock market. However, physical gold demand, especially in Asia, has created support around the 5,000 USD/ounce mark.
Since the outbreak of war, gold holdings by ETFs have decreased. According to Bloomberg data compiled, total holdings decreased by nearly 30 tons last week, recording the strongest weekly net selling in more than two years.
However, the precious metal still receives certain support as a safe haven asset in the context of volatile global geopolitics and trade. Mr. Alexandre Carrier, portfolio manager at DNCA Invest Strategic Resources, said that in general gold is still an asset worth buying when prices adjust.
Meanwhile, the fighting continues to disrupt oil exploitation and refining activities across the Middle East. The US and Israel have launched their fiercest attacks on Iran and will not stop until the Islamic Republic is defeated, the Pentagon said on Tuesday, in a tougher tone after President Donald Trump earlier signaled that the conflict could end soon.
Traders have also reduced expectations about the Fed's level of policy easing this year before data released on Wednesday was forecast to show that February inflation is still much higher than the central bank's target, even before the war broke out.
Spot gold prices rose 0.5% to $5,217.50/ounce at 9:39 am in Singapore. Silver prices rose 0.4% to $88.67/ounce. Platinum and palladium prices both rose. The Bloomberg Dollar Spot Index fell 0.1%.
