Gold prices steadied on Thursday after earlier declines, as oil prices fell amid uncertainty over the U.S.-Israeli conflict with Iran. A softer dollar and lower yields provided support to bullion.
Spot gold rose 0.1% to $4,547.54 per ounce as of 02:04 a.m. ET, recovering from a 1% drop earlier. U.S. gold futures for June delivery closed 0.1% lower at $4,542.50. Oil prices experienced volatility, driven by doubts over resolving the U.S.-Israeli war with Iran. The dollar's retreat from a six-week high made gold cheaper for non-dollar holders, while a 0.2% fall in U.S. 10-year Treasury yields reduced the opportunity cost of holding non-yielding bullion.
Peter Grant, vice president and senior metals strategist at Zaner Metals, noted that the combination of lower oil prices and a retreating dollar should benefit gold in the short term, though he cautioned that market sentiment remains cautious. Gold has dropped over 14% since the conflict began in late February, affecting maritime traffic through the Strait of Hormuz and raising energy prices, which in turn stoked inflation concerns.
“So oil (is) down and the dollar retreating from a six-week high should bode well for gold in the short term here and it has firmed. I expect the trade's probably going to be a bit cautious here initially. We've seen agreements sort of fall apart.”
Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals
UBS analyst Giovanni Staunovo highlighted that rising oil prices, which elevate inflation, are pressuring central banks to consider maintaining or increasing interest rates, posing a challenge for gold in the near term. Despite its reputation as an inflation hedge, gold often struggles when interest rates are high.
Traders now estimate a 58% probability of at least one 25-basis-point interest rate hike by the U.S. Federal Reserve this year, up from 48% the previous day, according to CME's FedWatch Tool. Spot silver increased by 0.9% to $76.63 per ounce, platinum rose 0.6% to $1,962, and palladium gained 1.1% to $1,384.50.
“Increasing oil prices, which push inflation higher, are putting pressure on central banks to keep rates unchanged or potentially even increase them. This, thus remains a headwind for gold in the near term.”
Giovanni Staunovo, UBS Analyst
Background
The ongoing conflict in the Middle East has significantly impacted global markets, with energy prices and inflation concerns at the forefront. The Strait of Hormuz, a critical chokepoint for global oil shipments, remains a focal point of tension.
Looking ahead, market participants will closely monitor geopolitical developments and central bank policy decisions, as these factors will likely influence gold and oil prices in the coming months.
