Gold wavered, as the conflict in the Middle East entered a third week and investors weighed a softer dollar against continued threats to global oil supplies.
Bullion traded either side of $5,000 an ounce, falling as much as 1% early on Monday before reversing losses and pushing marginally higher. The metal steadied after dropping for a second straight week, under pressure from rising oil and inflationary concerns arising from the US-Israeli war with Iran. Crude fluctuated and a gauge of the dollar slipped as much as 0.3%, lending some support to commodities priced in the US currency.
Uncertainty over how long the war will last makes it difficult to assess the impact on markets and the wider economy. An aide to US President Donald Trump said the conflict could last four to six weeks, while both sides have given mixed signals. Trump said Iran wants to make a deal but that Washington wants better terms, while Tehran said it hasn’t asked for talks or a ceasefire.
Over the weekend, the US attacked Iran’s main oil-export hub and Tehran continued strikes on energy infrastructure in various countries around the Persian Gulf. Shipping remained near a standstill through the Strait of Hormuz, the strategic waterway through which a fifth of the world’s oil and liquefied natural gas typically moves.
As the war drags on, prospects for an interest-rate cut have dwindled. The latest US consumer spending data, released Friday, showed spending barely rose in January due to weaker-than-expected economic growth, even before the war began. Meanwhile, US consumer sentiment declined to a three-month low as fears mounted in recent weeks about the impact on gasoline prices from the conflict.
Traders now see virtually no chance of a rate cut at this week’s Fed meeting. Higher borrowing costs typically weigh on precious metals, which don’t pay interest.
Gold has “taken a breather” since the conflict began “as concerns about prolonged inflation and higher-for-longer interest rates overshadowed safe-haven demand,” said Manav Modi, a commodities analyst at Motilal Oswal Financial Services Ltd.
Though upward momentum has stalled, the metal has still gained around 16% this year. Concerns over stagflation — a combination of slower growth and high inflation — may push investors toward gold as a better store of value over the longer term.
Bullion may also find support in the long run as the war “erodes trust in the US amongst adversaries and increasingly allies,” said Kyle Rodda, an analyst at Capital.com — though any positive effects may be limited if central banks hike rates aggressively to tame inflation.
Spot gold rose 0.3% to $5,032.70 an ounce as of 2:19 p.m. in Singapore. Silver climbed 0.2% to $80.75. Platinum and palladium both gained. The Bloomberg Dollar Spot Index slipped 0.2% after adding more than 1% last week.