Gold prices fluctuated in a narrow range as investors weighed between rising inflation risks and efforts to limit oil supply shocks arising from the war in the Middle East.
The precious metal at one point increased by 0.5%, maintaining above the 5,000 USD/ounce mark after falling 0.3% in the previous session. Oil prices rebounded after the first session of decline in nearly a week, amid Iran's increased attacks on energy infrastructure around the Persian Gulf.
As the war between the US, Israel and Iran enters its third week, rising energy prices are raising concerns about inflation. This makes the prospect of interest rate cuts by the US Federal Reserve (Fed) and many other central banks faint. Traders hardly expect the Fed to cut interest rates in the meeting this week. High interest rates are often detrimental to gold.
However, gold prices have still increased by about 16% since the beginning of the year thanks to safe-haven demand in the context of geopolitical instability and concerns related to the Fed's independence. The upward momentum of the precious metal has stalled since the war broke out on February 28, but the risk of stagnation, i.e. the combination of slow growth and high inflation, is still considered a supporting factor for gold in the long term as it increases the value-saving role of this metal.
Gold demand is particularly stable in China. Domestic investors have continuously increased gold holdings through exchange-traded funds since the market reopened after the Lunar New Year holiday on February 24. According to Bloomberg calculations, the total value of capital inflows into gold funds during this period has exceeded 17 billion yuan, equivalent to about 2.5 billion USD. Gold prices in Shanghai have also been higher than international prices, showing that domestic demand is still strong.
Ms. Rhona O'Connell – Head of Market Analysis at StoneX Financial Ltd., said that gold demand in China has remained quite stable in recent weeks, although the stronger yuan has somewhat put pressure on domestic gold prices.
Spot gold prices rose 0.4% to $5,026.75/ounce. Silver prices rose 0.9% to $81.50/ounce, while platinum and palladium also recorded gains. The Bloomberg Dollar Spot Index, a measure of the strength of the USD, rose 0.1% after falling 0.6% in the first session of the week.
