Gold edged up as investors took stock of a dramatic selloff that has seen the metal tumble more than 15% since the start of the war in the Middle East.
Bullion reversed earlier losses on Tuesday, which had put it on course for a record 10th straight daily decline. High energy prices resulting from the conflict have raised inflationary risks, and prompted investors to ditch their relatively liquid and profitable positions in gold for other assets.
Like broad financial markets, gold has been whipsawed as traders a barrage of headlines around the war, with the metal sliding as much as 8.8% on Monday before paring much of the drop. Fighting continued unabated, even as President Donald Trump claimed talks are under way to end the conflict, while the Wall Street Journal reported that US partners in the Persian Gulf could join the fight.
The outcome of any negotiations and future passage of ships through the Strait of Hormuz remain uncertain and even existing damage to energy infrastructure will take time to rebuild. That means the threat of inflation continues to weigh on gold, as well as the expectation of interest-rate hikes by the Federal Reserve and other central banks - a headwind for non-yielding precious metals.
A similar dynamic followed the Russian invasion of Ukraine in early 2022, when an initial spike in the haven commodity was followed by a months-long decline, as an energy price shock rippled through markets and added to inflationary pressures.
"Gold’s price correction has seen a steeper-than-usual underperformance,” said Suki Cooper, global head of commodities research at Standard Chartered Plc, adding that it is "not unusual for gold to endure downside pressure for four to six weeks following a period of extreme distress, as gold proves to be a liquid asset in times of need.”
"What you tend to see in a big crisis like this is investors selling heavily positioned, well-performing assets in order to fund margin calls for underperforming assets - equities, bonds, whatever,” said Peter Kinsella, global head of forex strategy at Union Bancaire Privee UBP SA.
Gold performed in a similar manner in previous market shocks, he said. "Short-term shifts in pricing are all about positioning. Longer term it’s all with the monetary drivers. And that hasn’t changed.”
Though bullion has declined over the last few weeks, it had previously been on a prolonged rally underpinned by factors including geopolitical and trade tensions and elevated purchases by central banks. Some countries that have been accumulating bullion are energy importers, so a steeper oil and gas bill resulting from the war means fewer dollars retained to be recycled into gold.
Spot gold added 0.4% to $4,425.18 an ounce by 10:14 a.m. in London. Silver rose 1.3% to $70.06 an ounce, while platinum gained and palladium steadied. The Bloomberg Dollar Spot Index rose 0.2%. - Bloomberg
