(March 23): Gold pared dramatic losses on Monday as US President Donald Trump postponed military strikes against Iranian power plants and energy infrastructure for a five-day period. Silver also rallied, erasing losses of more than 10%.
Spot gold rebounded to trade about 2% lower, after Trump said he’d ordered strikes to be postponed after engaging in “productive” conversations with Iran about a total resolution to hostilities in the Middle East. Bullion had earlier plunged as much as 8.8% in early trading in London, extending steep losses seen since the war began.
Over the weekend, US President Donald Trump gave Iran a two-day deadline to reopen the Strait of Hormuz or face strikes on its power plants. Iran countered that it would close the strategic waterway “completely” and target energy, information technology and desalination infrastructure if its power facilities come under attack. Trump’s ultimatum came at 7.44pm New York time on Saturday.
Part of the gold’s poor performance throughout the war can be explained by a dash for cash, as the conflict sees investors ditch their relatively liquid assets. Expectations of higher interest rates and a stronger dollar have also added to headwinds.
Since the conflict began, surging energy prices have raised the odds of rate hikes by the US Federal Reserve and other central banks. Non-yielding bullion looks less appealing when rates remain high. A similar dynamic followed the Russian invasion of Ukraine, when an initial spike in the safe-haven asset was followed by a months-long decline, as an energy price shock rippled through markets and added to inflationary pressures.
Gold’s reaction “to the current macro-economic shock has a clear market precedent”, said David Wilson, a director of commodities strategy at BNP Paribas SA. “If you look at all three previous economic-shock cycles — in 2008, 2020 and 2022 — gold initially fell as markets reacted to news flow, with investors typically selling assets to hold the US dollar,” he said, adding that all three periods were followed by a sustained rally.
See also: Gold dips below US$5,000 as high oil prices threaten Fed rate path
Spot gold was down 1.6% at US$4,417.82 ($5,651.16) an ounce at 11.35am in London on Monday. Silver rose 0.9% to US$68.52 an ounce. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.3%.
Uploaded by Tham Yek Lee
