Gold prices advanced on Wednesday, recovering some of the losses from the previous session, as dip-buyers entered the market on the fifth day of war in the Middle East.
Bullion rose by as much as 2%, clawing back ground after a four-day winning streak ended on Tuesday.
Traders are balancing the risk premium associated with gold against a stronger dollar, with the US currency surging 1.5% this week.
What the data is saying
Spot gold rose 1% to $5,137.64 per ounce as of 7:25 a.m. Nigerian time.
Silver climbed 2.4% to $83.97, after a more than 8% drop in the previous session.
Platinum and palladium each advanced nearly 2%.
Bond yields also rose, and surging energy prices increased the risk of widespread inflation, prompting traders to scale back expectations for monetary easing.
A broad selloff across equities on Tuesday also led some investors to liquidate positions to meet margin calls in other parts of their portfolios.
Get up to speed
Despite gold’s rally, the number of bullish bets has decreased sharply. According to the Commodity Futures Trading Commission, money managers’ net long position in gold has dropped since late January and is now near its lowest level in a decade.
Gold has surged by almost 20% this year, hitting an all-time high of $5,595 per ounce in late January. The rally has been driven by ongoing geopolitical tensions and concerns about the US Federal Reserve’s independence.
Markets are on edge as the US-Israeli war with Iran continues to escalate. Israel launched another round of strikes on Tehran on Tuesday, including an attack on a building in Qom where Iranian clerics were meeting to elect a successor to Supreme Leader Ayatollah Ali Khamenei.
While Iran’s Mehr news agency reported the building was not in use at the time, the attack further heightened tensions.
More insights
However, inflationary risks driven by surging energy prices could limit gold’s gains. The higher costs may prompt the Federal Reserve and other central banks to hold interest rates steady for longer or even increase them.
- Higher borrowing costs are a challenge for precious metals, which do not provide interest returns.
- Traders had priced in an 80% chance of more than one quarter-point rate cut by the Fed this year, down from earlier expectations of two cuts by Friday.
- In an effort to avoid a potential energy crisis, US President Donald Trump stated that the US would provide naval escorts and insurance guarantees for oil tankers and vessels passing through the Strait of Hormuz.
However, the shipping industry remains skeptical, with traffic through the strategic waterway, which carries about one-fifth of the world’s oil and gas, effectively coming to a halt due to the war.
What you should know
Reports indicate that oil and gas tankers are increasingly avoiding the Strait of Hormuz following US and Israeli strikes on Iran.
- Several vessels have turned back or delayed entry into the critical waterway, reflecting the rising tensions and reports of a radio broadcast from the Iranian navy allegedly banning transit.
- This disruption marks the first clear sign of interruptions to global commodity flows, raising concerns about energy supply and broader market stability.
