Gold declined, erasing its first weekly gain since the war in the Middle East began, as the Iran-backed Houthi militant group joined the conflict and more US military personnel moved into the region.
Bullion fell as much as 1.7% in early trading, having risen marginally last week after a flurry of dip-buying briefly halted a recent slide. There was no letup in attacks over the weekend as the war entered its second month, raising concerns of a prolonged conflict that could lead central banks to sell gold and hike interest rates to tame inflation.
Even as Pakistan, Egypt, Saudi Arabia and Turkey met to seek a path out of the war, Iran attacked aluminum smelters in Bahrain and the United Arab Emirates, and parts of Tehran lost electrical power after missile strikes. The entry of the Houthi militants in Yemen raised concerns over shipping via the Red Sea, while President Donald Trump said Iran “gave” the US most of the demands it set for an end to the fighting.
Since the war began, gold has fallen more than 15% and lost much of its appeal as a haven asset, instead moving largely in tandem with stocks and in an inverse relationship with oil. Crude advanced again on Monday as the widening conflict threatened further chaos for energy markets already upended by the near-closure of the Strait of Hormuz.
“Gold could remain vulnerable” in the short term, said Alexandre Carrier, a portfolio manager at the DNCA Invest Strategic Resources Fund, citing the risk of more central-bank selling and the liquidation of positions by investors.
Elevated central-bank buying has been a pillar of bullion’s rally over the last couple of years, but Turkey’s central bank bucked this trend during the first two weeks of the war as it sold and swapped about 60 tons of gold worth more than $8 billion. Many countries that have accumulated the metal are also energy importers, so rising oil prices means fewer dollars are available to be recycled into gold.
The economic shock from spiking energy prices has also stoked concerns that the US Federal Reserve and other central banks will hold interest rates steady or even hike them. That’s a headwind for non-yielding bullion.
Spot gold fell 1.3% to $4,436.63 an ounce at 8:42 a.m. in Singapore. Silver slipped 1.9% to $68.43. Platinum and palladium also declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, was flat after adding 0.7% last week.
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