Gold prices fell in Monday's trading session as the war between the US and Israel with Iran raised concerns about inflation, thereby reducing short-term interest rate cut expectations in the US and supporting the USD to appreciate.
Spot gold prices fell 1.2% to 5.088.47 USD/ounce in this afternoon's trading session, after falling more than 2% at one point earlier. US gold futures for April delivery fell 0.8% to 5,118.20 USD/ounce.
Mr. Giovanni Staunovo - UBS analyst said that the initial reaction of gold prices falling when the financial market showed signs of tension is not uncommon, because gold is a very liquid asset.
Asian stock markets plummeted as the inflation shock from the sharp increase in oil prices risked pushing global living costs and interest rates up. In that context, many liquidity-seeking investors have switched to holding the USD, causing the currency to rise to its highest level in more than three months.
The USD Index, a measure of the strength of the greenback against a basket of major currencies, is trading near a three-month high. A stronger USD makes gold more expensive for investors holding other currencies.
According to Mr. Staunovo, the market is interpreting the high oil price increase as a signal that inflation will increase, thereby forcing central banks to maintain a tighter monetary policy stance.
Oil prices have risen by more than 15%, to the highest level since mid-2022, as some major producers cut supplies and the market is concerned about prolonged transport disruptions.
Meanwhile, Iran on Monday appointed Mr. Mojtaba Khamenei to succeed his father, Ali Khamenei, as the new supreme leader of the country.
Investors are increasingly believing that the US Federal Reserve (Fed) will keep interest rates unchanged at a two-day policy meeting on March 18.
According to CME Group's FedWatch tool, the probability of the Fed keeping interest rates unchanged in June has increased to more than 51%, compared to below 43% the week before the new war began.
The yield on 10-year US Treasury bonds rose to its highest level in a month, thereby increasing the opportunity cost of holding gold, a non-performing asset.
On other precious metals markets, spot silver prices fell 0.3% to 84.07 USD/ounce after falling more than 5% earlier in the session. Platinum prices fell 1% to 2,113.97 USD/ounce, while palladium fell 1.3% to 1,604.09 USD/ounce.
