(Bloomberg) — Gold extended gains as dip-buyers supported prices despite escalating tensions in the Middle East keeping the market under pressure.
Bullion rose as much as 1% to trade above $4,100 an ounce, extending a nearly 2% gain in the previous session. Silver also advanced, to near $60 an ounce. The upswings came as Treasury yields remain elevated and renewed hostilities between the US and Iran are yet to show any sign of resolution.
The momentum has already drawn fresh inflows into exchange-traded funds, with total holdings rising by around 7.4 tons on Tuesday, according to a Bloomberg tally. That’s the highest daily inflow in more than a month.
“It’s probably a breakout following the volatility crush over the past few days,” said Justin Lin, an analyst at Global X ETFs, referring to the sharp decline in volatility to the level last seen in early June. “It seems like buyers have successfully held $4,000 and selling pressure has faded,” he added.
Gold’s rally has shrugged off latest developments in the Middle East. US President Donald Trump played down the prospect of immediate talks with Iran after the two sides exchanged strikes near the Strait of Hormuz, while Houthi militants in Yemen threatened shipping in the Red Sea.
Trump’s comments came after the 10th day of US and Iranian attacks and as mediators continued efforts to restart negotiations. Oil prices again ticked higher on Wednesday, and have surged in July since hostilities resumed in the nearly five-month war.
The US-Iran conflict helped to end a multiyear bull run for gold, which has fallen around a quarter from its January peak of close to $5,600 an ounce. Traders are weighing higher energy prices against soft US economic data as they scan for clues about the Fed’s path for interest rates. Elevated borrowing costs are a headwind for non-yielding bullion.
“Gold is struggling for direction,” with central bank purchases supporting prices while exchange-traded funds sold holdings on rate-hike fears, analysts at Morgan Stanley including Amy Gower said in a note. However, they see room for ETFs to re-enter the market on the expectation that the Fed will ultimately stay on hold this year and resume cutting rates next year.
The analysts forecast gold at $4,450 an ounce and silver at $65.40 an ounce by the fourth quarter.
Spot gold was 1% higher at $4,121.42 an ounce as of 10:18 a.m. in Singapore. Silver was up 2% at $59.75 an ounce. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, was stable after rising 0.2% the previous session.
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