Gold Strengthens as Trump Signals De-escalation, Dollar Weakens
Gold prices strengthened after US President Donald Trump signaled that the conflict in the Middle East could soon ease, triggering a sharp decline in oil prices and weakening the dollar. Gold briefly rose as much as 0.9% to reach US$5,180 per ounce, erasing the previous session's decline, as the dollar fell around 0.1% and crude oil fell more than 10% in a still-volatility market.
These de-escalation signals have partially reduced the "risk premium" that had previously supported gold since the war with Iran entered its second week. The risk of a closure of the Strait of Hormuz and attacks on energy infrastructure had spurred a surge in oil prices, fueling inflation concerns, and in turn shifting global interest rate expectations higher.
Rising borrowing costs are typically a drag on gold because it offers no yield. However, during periods of extreme volatility, gold often serves as a source of liquidity when investors need cash amid a decline in risk assets. Standard Chartered believes gold serves this function: geopolitical premiums can drive prices up, but when liquidity pressures increase, gold is often the first asset to be sold, especially after a strong rally.
Year-to-date, gold is still up about a fifth, supported by major shifts in US trade and geopolitical policy and concerns about the independence of the Federal Reserve. However, gold holdings in ETFs have declined since the outbreak of the war, with a drop of nearly 30 tons last week—the largest weekly sell-off in more than two years—suggesting some investors are reducing exposure amid repositioning interest rate expectations.
Trump also mentioned that the US Navy would escort tankers through the Strait of Hormuz—a passageway through which about a fifth of the world's oil and LNG passes—though without providing technical details, and he did not expect the conflict to end this week. In recent trading, spot gold rose 0.6% to US$5,169.93 per ounce in Singapore, while silver jumped 2.4% to US$89.06; platinum and palladium weakened slightly, and the dollar index remained relatively stable after falling in the previous session. (alg)
Source: Newsmaker.id
