Gold Continues Correction, Dollar Strengthens Slightly Ahead of Iran Deadline
Gold weakened, extending a two-day decline, as market participants weighed US President Donald Trump's latest threat to attack Iranian infrastructure and the impact of a protracted war on growth prospects. Price pressures occurred amid growing uncertainty ahead of a diplomatic deadline on Tuesday evening (April 7th) US time.
Bullion briefly corrected as much as 0.14% to below US$4,642 per ounce, after losing more than 2% in the previous two sessions. Trump set a Tuesday deadline of 8 p.m. ET for reaching a deal with Tehran, or the US would launch attacks on power plants and bridges, increasing the risk of an escalation of the conflict.
The conflict, which is entering its sixth week, also increases the likelihood that central banks will delay interest rate cuts, even opening room for tightening, amid concerns about inflation triggered by energy supply shocks. In the bond market, US Treasuries recorded limited gains, with market participants expecting the Federal Reserve to maintain interest rates until the end of the year.
The high interest rate environment is a structural barrier for gold because the precious metal does not offer a yield. In this context, gold's decline also occurred as oil rebounded, reinforcing the pattern of inverse movements between the two during the current conflict phase.
However, cost pressures from energy supply shocks are also seen as restraining growth, thus providing room for defensive support for gold. Recent data shows the US services sector slowed in March, as employment contracted by the most since 2023 and input prices rose sharply.
On the capital flows side, there are indications of buying interest during price declines. Holdings of gold-backed ETFs rose last week for the first time since the war began, indicating some investors are gradually rebuilding exposure.
Trump also emphasized that the Strait of Hormuz must be reopened as part of a deal, while the waterway remains largely closed to shipping since the conflict began, and Iran has rejected the US proposal and warned of a response in the event of further attacks. Looking ahead, oil is likely to remain volatile, with geopolitical premiums persisting as long as the Hormuz uncertainty and Tuesday's deadline remain uncertain. Gold is likely to be caught in a tug-of-war between yield/interest rate pressures and risk-off support and growth concerns. While the dollar has the potential to strengthen as geopolitical risks rise and markets reduce risk exposure, its future direction will be heavily influenced by changes in expectations about the Fed's policy stance if energy inflation rises again. (asd)
Source: Newsmaker.id
