Gold Falls as Oil Surge Fuels Interest Rate Concerns
Gold prices weakened, pressured by a strengthening US dollar and growing concerns about persistently high interest rates, amid the Middle East war entering its second week and a surge in oil prices approaching US$120 per barrel. Gold briefly fell as much as 3% to around US$5,015 per ounce before paring some of its losses, after recording its first weekly decline in more than a month. At 11:59 a.m. in Singapore, spot gold was down 1.6% at US$5,091.06 per ounce, while the dollar index rose about 0.6% after gaining 1.3% the previous week.
The surge in energy prices strengthens the transmission to financial markets through inflation expectations. When oil rises and US inflation risks increase, markets tend to expect the Federal Reserve to hold interest rates for longer, even opening the door to a hike. Higher interest rates and a stronger dollar are typically headwinds for gold because the precious metal offers no yield. Some market participants also use gold as a source of liquidity during sharp declines in global stock markets, so selling pressure can arise even if geopolitical uncertainty increases. On the geopolitical front, the conflict has reportedly entered its 10th day, with escalations targeting energy infrastructure and disrupting shipping through the Strait of Hormuz, a waterway that typically handles about a fifth of the world's oil. Oil and gas producers in the Persian Gulf region are reportedly reducing production, tightening supply and fueling the oil rally. In this context, the strengthening dollar has become the dominant factor pressuring gold, as investors position themselves for inflation risks and the direction of the Fed's policy.
Despite increased volatility and restrained upward momentum, gold has still recorded an increase of around 18% since the beginning of the year. Structural support continues to come from major shifts in US trade and geopolitical policy, as well as gold purchases by central banks, including the People's Bank of China, which increased its holdings in February, extending its buying trend to 16 months. Some analysts believe a swift resolution to the conflict has the potential to weaken the dollar and boost gold, while a prolonged conflict tends to keep the dollar and bond yields high due to anticipated inflation.
In other metals markets, silver fell 1.7% to US$83.11, platinum weakened 2.2%, and palladium fell 0.8%. Going forward, gold's movement will be sensitive to three variables: the direction of oil prices and inflation, changes in US interest rate expectations, and conflict developments that affect safe-haven demand and market participants' liquidity needs. (alg)
Source: Newsmaker.id
