(Bloomberg) — Gold bounced back from a three-day decline, as the dollar sank and traders weighed the prospect of a fresh US military engagement in Iran.
Bullion rose as much as 2.2% to trade above $4,600, after falling 3.4% over the previous three sessions. The US dollar fell against a basket of other currencies, following speculation Japan is intervening in the foreign-exchange market to support the yen. A weaker greenback tends to boost gold, making it cheaper for buyers in other currencies.
Gold has fallen about 13% since the war began in late February, as traders bet that central banks will need to keep borrowing costs higher to curb the inflationary impact of higher energy prices. That’s a headwind for gold, which does not yield interest.
The precious metal has traded in the opposite direction to oil throughout most of the US-Iran war. Crude futures fell in a volatile session on Thursday, after rallying earlier on an Axios report that the head of US Central Command would brief President Donald Trump about military options, signaling a resumption of combat operations is under consideration. Iran remained defiant.
Most analysts are still bullish on the precious metal, with the latest data by the producer-funded World Gold Council showing that central banks added gold holdings at the fastest pace in more than a year in the first quarter, as a slump in prices encouraged a wave of buying that more than offset sales by a handful of institutions.
“The shift in environment for gold argues for caution in gold prices, unless oil prices ease lower,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “That said, the medium-term structural case remains supported by central bank demand, reserve diversification flows.”
Spot gold rose 1.5% higher to $4,615.20 an ounce at 3:33 p.m. in London. Silver gained 2.6% to $73.18 an ounce. Palladium and platinum also advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, was 0.6% lower after ending the previous session up 0.4%.
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