Key Points:
- Gold dipped below 5,200 dollars an ounce on Wednesday.
- New US inflation data showed slowing prices before the Iran conflict began.
- The ongoing war is pushing oil prices up, sparking fresh inflation fears.
- A stronger US dollar and rising Treasury yields hurt the appeal of gold.
Gold prices slipped on Wednesday after new economic data failed to ease investor worries. The precious metal held below the 5,200 dollar mark as fears over the escalating war in Iran pushed the US dollar and Treasury yields higher. Because gold does not pay regular interest, higher yields make the metal less attractive to buyers.
The US government released inflation numbers for February, showing that price pressures had started to slow down. However, investors quickly dismissed this positive news. Daniel Ghali, a commodity strategist at Toronto Dominion Bank, explained that the market views the February report as old news. The data only covers the period right before the Middle East conflict exploded.
Now, the market is entirely focused on the future. The war has caused a massive shock to global oil prices. Traders fear this sudden jump in energy costs will inevitably drive overall inflation back up in the coming months. Because of this threat, experts now believe the Federal Reserve will only cut interest rates once this year, leaving borrowing costs high.
Gold has enjoyed a strong year overall, climbing about 20 percent since January. Yet, the price has struggled to push higher since the fighting started late last month. Investors are constantly adjusting their strategies based on President Donald Trump’s shifting statements. On Wednesday, Trump threatened to strike even more targets in Iran, completely reversing his claim from the previous day that the operation would end soon.
Despite the recent price drop, some positive signs remain for gold. Exchange-traded funds backed by gold actually saw money flow in on Tuesday. This marks a shift after days of continuous selling. Helen Amos, an analyst at BMO Capital Markets, suggested that investors might finally be adjusting to the new normal and rethinking how they want to use gold to protect their wealth during this crisis.
