Gold Prices Remain Under Pressure Amid Geopolitical Uncertainty and Hawkish Fed Stance
Gold and silver prices slumped amid ongoing uncertainty over the war in Iran. Citing Refinitiv, the price of gold on Monday closed at US$4,015.23 per troy ounce, a drop of 1.8%. This decline snapped a positive trend for the precious metal, which had strengthened by 2.2% over the previous two consecutive days. In early Tuesday morning trade at 06:02 Western Indonesian Time, gold was at US$4,014.78 per troy ounce, down 0.01%.
According to Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, the market remains highly sensitive to developments in the Middle East. “The market is still focused on developments in the Middle East. Tensions escalated over the weekend and investors are also continuing to adjust to the Federal Reserve’s increasingly hawkish stance,” he said, as quoted by Refinitiv.
On Sunday, Iran launched missiles and drones at US military bases in Kuwait and Bahrain, shortly after US President Donald Trump threatened to destroy the Iranian leadership if the country did not comply with the terms of a final peace agreement. Brent crude oil prices rose following the attack. Although gold is known as a safe-haven asset, rising energy prices due to war actually increase inflation fears and drive up interest rate expectations, which typically reduces the appeal of gold as the precious metal offers no yield.
The Federal Reserve held interest rates steady this month, but policymakers forecast one more rate hike before the end of the year as inflation remains above the central bank’s 2% target. Meanwhile, the US dollar is heading for its biggest monthly gain in nearly a year. A stronger dollar makes gold more expensive for buyers outside the United States. Market participants are now awaiting the ADP employment data on Wednesday and US nonfarm payrolls data on Thursday for further clues on the direction of the Fed’s monetary policy. Grant added that gold prices could fall further if the employment data remains strong, as this would reinforce the view that the Federal Reserve will keep interest rates higher for longer.