Gold prices plummeted as the USD strengthened and concerns about interest rates rising again, amid the war in the Middle East entering its second week and oil prices exceeding the 100 USD/barrel mark.
The precious metal at one point fell by 2.5%, to below $5,050/ounce in the first trading session of the day. This development occurred after gold just recorded its first week of decline in more than a month. Some major oil producers in the Persian Gulf region have cut production due to the war between the US and Israel with Iran showing no signs of cooling down, while the USD strength index increased by 0.6%.
Gold prices are under pressure as crude oil prices rise sharply, raising concerns about inflation in the US. This increases the possibility that the US Federal Reserve (Fed) will keep interest rates at a higher level for a longer time, and may even continue to raise interest rates. Higher borrowing costs and a stronger USD often adversely affect precious metals. In addition, gold is also used by some investors as a source of liquidity when the global stock market falls into a deep sell-off.
Although recent trading has been quite volatile and the upward momentum has stalled, gold prices have still increased by about 17% since the beginning of the year. Changes in global trade and geopolitical policies under US President Donald Trump, along with concerns about the independence of the Fed, have contributed to maintaining the attractiveness of safe-haven assets. Strong buying activity by central banks also supported the upward trend of gold. The People's Bank of China continued to buy gold in February, extending its net buying streak to 16 consecutive months.
According to Mr. Ed Meir, a metal analyst at Marex, if the conflict ends relatively quickly, the USD may weaken and gold prices will recover. Conversely, if the war lasts, the USD and US bond yields may continue to rise due to higher inflation expectations, thereby reducing the possibility of the Fed cutting interest rates. In his comments released on March 7, he said that the market is currently in a stage where caution should be observed. According to him, there are always times to buy, times to sell, and there are also times when you should just stand by and wait, and at this time the most suitable choice is to wait.
The war in the Middle East has now entered its 10th day. Last weekend, Tehran chose its new supreme leader and continued attacks in the Persian Gulf region. Meanwhile, Israel carried out airstrikes on fuel depots in Tehran and threatened Iran's power system. Attacks targeting energy infrastructure and disrupted transportation through the Strait of Hormuz have caused oil and gas prices to rise sharply. This strategic transport route normally carries about one-fifth of the global oil transportation volume.
As of 7:58 am in Singapore, spot gold prices fell 1.9% to 5,075.07 USD/ounce. Silver prices fell 3.1% to 81.90 USD/ounce. Platinum fell 4.6% and palladium fell 1.5%. The Bloomberg Dollar Spot Index, a measure of the strength of the USD, rose 0.5% after rising 1.3% last week.
