Gold fell as traders weighed a standoff between the US and Iran that’s dashed expectations for rate cuts from central banks across the world.
Bullion fell as much as 1.2%, after adding 1.5% in the previous session. US President Donald Trump vowed to maintain a naval blockade on Iran and was briefed by commanders on further military options, according to a report. Iran said the blockade would have to end for the Strait of Hormuz to be reopened. Oil gained.
The energy-supply shock caused by the nine-week conflict has added to inflation risks, raising the likelihood that central banks will keep rates steady for longer or even hike them, which is a headwind for non-yielding bullion. Gold has lost nearly 14% since the conflict began at the end of February.
“Selling pressure on gold could remain strong in the very near term on Middle East uncertainty, especially in the case of higher gold prices and another wave of equity market correction,” Citigroup Inc. analysts including Kenny Hu said in a note.
Gold’s gains on Thursday came as the the yen surged the most in three years after the Nikkei newspaper reported that the Japanese government had begun intervening in the market. A weaker greenback tends to boost gold that’s priced in the US currency.
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 in the first quarter at the fastest pace in more than a year. The slump in prices encouraged a wave of buying that more than offset sales by a handful of institutions.
“There’s not a ton of conviction around the near-term trajectory, even if the medium-term bull story, which we agree with, is still broadly consensus,” Greg Shearer, head of precious and base metals research at JPMorgan Chase & Co.
Continued retail buying in China had helped support prices in recent months he said, and the broad trend of central bank accumulation was still intact. A clear de-escalation in the Middle East and an accompanying dip in interest rate expectations and the dollar would mean “it’s game-on again for gold,” he said.
Spot gold fell 1.1% to $4,569.30 an ounce at 10:46 a.m. in London. Silver dipped 0.7% to $73.23 an ounce. Platinum and palladium were lower. The Bloomberg Dollar Spot Index, a gauge of the US currency, was steady after sliding 0.8% on Thursday.
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