Gold Weakens, US-Iran Peace Progress Seen as Slow
Gold prices fell slightly on Monday as market participants assessed that negotiations to extend the US-Iran ceasefire were progressing slowly, after optimism on Friday had boosted it by about 1%. Bullion fell as much as 0.5% to below US$4,520 per troy ounce, before trading around US$4,524 at 10:45 a.m. Singapore time.
The shift in sentiment was triggered by developments over the weekend, when the US and Iran exchanged messages proposing changes to the draft agreement, but it was unclear whether the talks were close to a breakthrough. Meanwhile, regional escalation continued after Israel carried out its most extensive operation in Lebanon in a quarter-century, while Hezbollah stepped up attacks on northern Israel.
In cross-asset markets, oil rallied from a six-week low as peace hopes were seen as fading in the short term. The US dollar also rose, making dollar-denominated gold relatively more expensive for buyers outside the US, adding to pressure on bullion prices.
Fundamentally, the market views the reopening of energy and trade flows through the Strait of Hormuz as potentially alleviating global inflation concerns. If inflation risks decline, the opportunity for monetary policy easing will be more open, and lower interest rates are typically a supportive factor for gold as this instrument does not provide a yield.
However, the current narrative for gold is seen as being in a "tug of war" between two forces: safe-haven demand, which remains strong due to war uncertainty, and pressure from real yields and the dollar, which are sensitive to Fed policy expectations. Fed Vice Chair for Supervision Michelle Bowman also stated on Friday that it is too early to assess the inflationary impact of the Iran war and that policymakers need to look beyond temporary price shocks.
Gold is said to tend to move within a narrow range until the geopolitical fog clears or thickens. Variables monitored by the market include the direction of US-Iran negotiations and the status of Hormuz, the escalation between Israel and Hezbollah, movements in the US dollar and real yields, and inflation signals that could alter monetary policy readings. (asd)
Source: Newsmaker.id
