Key Points:
- Gold prices gained slightly on Friday to reach $4,648.80 an ounce but still suffer from a two-month losing streak.
- Central banks worldwide signal possible interest rate hikes to curb rising inflation driven by high oil prices.
- The ongoing standoff between the United States and Iran keeps the vital Strait of Hormuz closed to shipping.
- Investors prefer the US dollar over gold as a safe asset, even as global energy disruptions threaten the economy.
Gold prices managed to erase early losses and tick slightly higher on Friday. A weaker United States dollar helped the yellow metal gain some ground at the end of the week. Despite this small daily victory, gold just wrapped up a tough month. The metal suffered slight losses throughout April and currently sits near its lowest price point in four weeks.
At 10:50 AM (ET), gold futures climbed 0.41% to hit $4,648.80 an ounce. Other precious metals also experienced a strong Friday finish. Silver jumped 3.51% to trade at $76.63 an ounce, while platinum moved up 0.64% to reach $2,007.30 an ounce. Market holidays across most of Europe and Asia kept overall trading volumes relatively low.
Zooming out, gold investors are nursing two consecutive months of painful losses. Spot prices fell about 1% in April. This drop extended a brutal losing streak that began with a massive 12% slump back in March. Fears concerning skyrocketing inflation pushed currency traders away from gold and directly into the safety of the United States dollar.
The ongoing war with Iran caused widespread disruptions in global crude oil supplies. This conflict created a massive spike in oil prices, which completely overshadowed the traditional appeal of gold. When energy costs soar, the prices of everyday goods rise, creating a wave of inflation that terrifies financial markets.
A host of aggressive signals from major central banks placed heavy pressure on the metal markets this week. At the Federal Reserve, an increasing number of policymakers sounded the alarm about this new energy-driven inflation. Other major financial institutions share this same fear. The European Central Bank, the Bank of England, and the Bank of Japan all hinted they will enact near-term interest rate hikes to fight the rising cost of oil.
Higher interest rates create a very poor environment for gold and other precious metals. Gold pays no monthly interest or dividends to its holders. When central banks raise interest rates, they increase the opportunity cost of investing in the metals sector. Investors naturally prefer to invest in assets that generate a reliable cash yield.
Geopolitics continues to dictate market movements. The ongoing deadlock between the United States and Iran keeps traders largely averse to gold and heavily biased toward the dollar. Reports earlier this week revealed that military advisors briefed President Donald Trump on potential new military actions against Iran. These briefings took place right after recent attempts to broker peace talks between Washington and Tehran fell flat.
Iran’s Supreme Leader, Mojtaba Khamenei, issued a rare public statement on Thursday. He declared that Iran will maintain absolute control over the Strait of Hormuz. He also stated that Tehran will actively safeguard its nuclear programs and missile interests. Khamenei claimed that Iranian control of the crucial waterway would actually bring calm, progress, and economic benefits to all the nations in the Gulf.
This bold statement came shortly after reports indicated that President Trump was very unhappy with an Iranian proposal. Tehran offered a deal to reopen the strait and end the war, but the American president rejected the terms. The Strait of Hormuz remains the absolute center of this conflict. Iran has effectively blocked the waterway since direct hostilities with the United States and Israel began in late February.
Since the war started, gold has constantly lagged behind the dollar. Normally, investors rush to buy gold during times of global conflict. However, the intense fear of energy-driven inflation vastly overshadowed the traditional safe-haven demand for the yellow metal. As long as oil prices dictate the global economy, the dollar will likely maintain its winning streak.
