Gold Steadies With Traders Looking to Oil and Dollar During War
Gold steadied as traders tracked the war in the Middle East and assessed news that the International Energy Agency may undertake the largest-ever release of oil reserves.
Bullion held below $5,200 an ounce, after adding 1% Tuesday. The IEA has suggested a release in the range of about 300 million to 400 million barrels, a person familiar with the matter told Bloomberg. Still, crude futures rallied on Wednesday.
The precious metal has risen by about a fifth this year, although prices have not made headway since the Iran war broke out in late February. The initial phase of the conflict boosted the dollar, denting precious metals. Bullion may also have been sold to cover losses elsewhere.
The metal “struggled somewhat under the weight of US dollar strength and falling US equities last week, with gold being sold to cover equity-margin calls,” said David Wilson, director of commodities strategy at BNP Paribas SA. “Physical gold interest, particularly in Asia, provided a backstop.”
For bullion, the extreme volatility in energy prices has increased concerns over inflation, in turn reducing expectations that the Federal Reserve and other central banks will be able to cut interest rates. Higher borrowing costs are a headwind for precious metals, which don’t pay interest.
Gold’s “muted reaction” to the Iran conflict has been “largely overshadowed by a strong USD and rising yields,” analysts at BMO Capital Markets wrote in a note Wednesday. With the metal still closely tracking the inverse of the greenback, “upcoming ETF and central bank flows will be key to assessing demand from major buyers like India and China,” they said.
The conflict continues to disrupt crude production and refining across the Middle East. The US and Israel have conducted their most intense day of attacks yet against Iran, and won’t give up until the Islamic Republic is beaten, the Pentagon said on Tuesday, striking a more aggressive tone after President Donald Trump’s earlier indication that the conflict could end soon.
Traders have pared the amount of Fed policy easing they expect this year ahead of data due Wednesday that’s projected to show February inflation remained well above the central bank’s target, even before the fighting erupted.
Spot gold was mostly flat at $5,179 an ounce as of 10:44 a.m. in London. Silver fell 2.1% to $86.45 an ounce. Platinum and palladium declined. The Bloomberg Dollar Spot Index was steady.
Source : Bloomberg.com
