(April 1): Gold extended a three-day rally on Wednesday on signals that the war in the Middle East may be nearing resolution, with traders shifting focus from interest-rate hikes to the longer-term risk of an economic downturn.
Bullion rose as much as 1.7% to top US$4,700 ($6,029.63) an ounce, adding to a 3.5% jump in the previous session before later paring gains. President Donald Trump said he expected the US to end the war with Iran within two to three weeks, suggesting that America had largely accomplished its military goals and would leave others to reopen the Strait of Hormuz.
Equities rallied and the US dollar fell. Bond traders are reducing bets that central banks will hike rates to tame inflationary risks arising from the conflict, turning instead to the war’s impact on economic growth. US Federal Reserve (Fed) chair Jerome Powell said earlier this week that longer-term inflation expectations remain anchored.
“Gold’s safe‑haven appeal tends to re‑emerge when the narrative shifts from inflation to growth risk,” said Yuxuan Tang, the Asian head of rates and foreign exchange strategy at JPMorgan Private Bank. “We hold a high conviction that the Fed has limited bandwidth to raise rates this cycle” and will instead focus on the strained labor market, she said. Lower rates are a tailwind for gold, which doesn’t pay interest.
Despite the rebound in the past few days, bullion’s near-12% decline in March was its worst monthly performance since October 2008. The Middle East war, now in its fifth week, has upended global markets and choked supplies of energy and other goods, triggering concerns about a spike in inflation that outweighed gold’s traditional appeal as a haven.
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Retail buying slowed in the initial days of gold’s March plunge, as it confounded customers’ expectations of a rally in the face of the escalating conflict in Iran, said David Higgins, the head of trading at bar and coin dealer Merrion Gold. “In the last week or so, things have been very busy again,” he said. “Retail buyers aren’t as affected by higher interest rates as a bank is, and are more focused on inflation.”
Goldman Sachs Group Inc is among the banks to retain a bullish view on gold. In a note published on Tuesday, analysts Lina Thomas and Daan Struyven kept a year-end forecast of US$5,400 an ounce, citing continued purchases by central banks and a forecast of two more rate cuts in the US this year.
Trump will address the nation on Wednesday night “to provide an important update on Iran”, White House press secretary Karoline Leavitt said in a post on X. The US leader has vacillated between saying a resolution is imminent and threatening an escalation of military operations.
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Iran has also listed certain requirements to end the fighting, including authority over Hormuz, the crucial waterway that — before the war — was a transit point for around a fifth of the world’s oil and liquefied natural gas. State media quoted President Masoud Pezeshkian as saying the Islamic Republic was ready to end the war if its demands are met.
Spot gold had gained 1.1% to US$4,718.94 an ounce at 11.08am London time on Wednesday. Silver slid 1% to US$74.38. Platinum edged higher, while palladium dipped. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.3% after losing 0.6% on Tuesday.
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