Key Points:
- Gold prices bounced around the $5,000 mark as the war in the Middle East continued.
- The US-Israeli conflict with Iran is driving up oil prices and inflation fears.
- Shipping through the critical Strait of Hormuz remains nearly completely stopped.
- Traders no longer expect the Federal Reserve to cut interest rates this week.
Gold prices bounced back and forth on Monday as the conflict in the Middle East entered its third week. Investors struggled to decide what to do with their money, weighing a slightly weaker US dollar against the constant threats to global oil supplies.
The precious metal hovered just above the massive $ 5,000-per-ounce mark. During early trading, gold dropped as much as 1% before reversing direction and pushing slightly higher. This stabilization comes after gold suffered two straight weeks of losses. The recent pressure on the metal stems directly from the US-Israeli war with Iran, which has sparked serious fears about skyrocketing oil prices and rising inflation.
The uncertainty about the war’s duration makes it incredibly difficult for financial experts to predict what will happen next. A top aide to US President Donald Trump recently suggested the military conflict could last another 4 to 6 weeks. However, both sides continue to send mixed signals. President Trump claimed Iran desperately wants to make a deal, but he insisted Washington will hold out for better terms. Meanwhile, officials in Tehran stated firmly that they have not asked for any peace talks or a ceasefire.
The violence escalated significantly over the weekend. The United States launched military strikes directly against Iran’s main oil-export hub. In retaliation, Tehran continued its own strikes, targeting vital energy infrastructure in various countries scattered around the Persian Gulf. As a result, commercial shipping remains at a complete standstill through the Strait of Hormuz. This narrow, strategic waterway normally handles about 20% of the world’s daily oil and liquefied natural gas shipments.
As the war drags on, Wall Street has largely abandoned hope of a quick interest rate cut. The latest US economic data, released last Friday, painted a gloomy picture. The report showed that consumer spending barely rose in January, reflecting weaker-than-expected economic growth even before the war officially began. Furthermore, US consumer confidence recently crashed to a 3-month low as everyday Americans grew increasingly terrified about how high gasoline prices might climb.
Because of this bleak economic outlook, traders now see virtually a 0% chance that the Federal Reserve will cut interest rates at its policy meeting this week. Higher borrowing costs usually hurt precious metals like gold because those investments do not pay regular interest to their holders.
Manav Modi, a commodities analyst at Motilal Oswal Financial Services, explained the current market mood. He noted that gold has basically “taken a breather” since the shooting started. The intense worries about prolonged, sticky inflation and higher-for-longer interest rates simply overshadowed the traditional demand for gold as a safe-haven investment.
Even though the upward momentum stalled out recently, gold has still gained roughly 16% since the start of the year. Some experts believe that fears of “stagflation”—a painful economic mix of very slow growth and high inflation—might eventually push investors back toward gold as a long-term store of value.
Kyle Rodda, an analyst at Capital.com, suggested that bullion might find solid long-term support for political reasons. He argued that the ongoing war actively erodes trust in the US financial system among both adversaries and allies. However, he warned that any positive boost for gold could vanish quickly if global central banks decide to hike interest rates aggressively to crush inflation.
