Gold increased by over 2% on Wednesday, supported by a weaker dollar, while declining oil prices alleviated worries regarding high inflation and rising global interest rates, in light of reports concerning a U.S. initiative to conclude the conflict in the Middle East. Spot gold increased by 2.5%, reaching $4,587.09 per ounce as of 0218. U.S. gold futures for April delivery increased by 4.2%, reaching a price of $4,586.10. The dollar softened, resulting in lower prices for bullion denominated in greenbacks for holders of alternative currencies.
With hopes of de-escalation in the Middle East conflict, and “as USD strength eased, safe-haven demand begins to reassert itself. This underscores the perspective that gold has maintained its status as a safe-haven asset. “It was briefly crowded out by the USD, and now that pressure is easing,” said Christopher Wong. In the near term, gold is expected to remain responsive to expectations regarding the Federal Reserve’s policy trajectory, fluctuations in the USD, and geopolitical events. However, the recent rebound indicates that any declines may continue to encounter support unless there is a significant increase in real yields.
Oil prices declined below $100 a barrel, alleviating inflation worries, amid the potential for a ceasefire that could mitigate supply disruptions from the crucial Middle East production area. U.S. President Donald Trump stated on Tuesday that the United States is advancing in its negotiations aimed at concluding the conflict with Iran, highlighting a significant concession obtained from Tehran. Additionally, a source verified that Washington has presented Iran with a 15-point settlement proposal. Elevated crude prices generally contribute to inflationary pressures by increasing transportation and manufacturing expenses. While increasing inflation generally enhances gold’s attractiveness as a protective measure, elevated interest rates exert pressure on the demand for this non-yielding asset.
Interest rate futures have eliminated any expectation for a U.S. Federal Reserve rate cut this year, as indicated by CME Group’s FedWatch tool. Gold prices are currently trading approximately 17% below pre-conflict levels, influenced by the strength of the USD and a general trend of de-risking. Historically, such a decline has presented a tactical buying opportunity, and the bullish argument becomes more compelling as the conflict continues, according to a note. Spot silver increased by 3.6%, reaching $73.78 per ounce. Spot platinum increased by 2.2% to $1,978.10, while palladium rose by 1.5% to $1,461.56.