(Bloomberg) — Gold (GC=F) fell as investors weighed conflicting statements on the war in the Middle East, with a postponement of US strikes on Iran’s energy infrastructure bringing only brief respite from the precious metal’s dramatic wartime decline.
Bullion lost as much as 1.8% – having earlier climbed nearly 1% – in a volatile session that largely tracked equities and an inverse relationship with oil. US President Donald Trump announced a five-day delay to attacks he had threatened on Iranian power plants and said on Monday that “productive discussions” had taken place, but an Iranian official ruled out talks and the Wall Street Journal reported that US partners in the Persian Gulf could join the fight.
High energy prices resulting from the conflict have raised the risk of inflation and prompted investors to ditch their relatively liquid and profitable positions in gold for other assets. The metal dropped nearly 2% in the previous session for its ninth straight daily drop – a 10th would signal the longest losing streak in history.
Despite the pause announced by Trump, the outcome of any negotiations and future passage of ships through the Strait of Hormuz remain uncertain. Even existing damage to energy infrastructure will take time to rebuild. That means the threat of inflation remains, as well as the expectation of rate hikes by the US Federal Reserve and other central banks — a headwind for non-yielding precious metals.
“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.”
A similar dynamic followed the Russian invasion of Ukraine in early 2022, when an initial spike in the safe-haven commodity was followed by a months-long decline, as an energy price shock rippled through markets and added to inflationary pressures.
“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 2022 and during the 2008 global financial crisis, he said. “Short-term shifts in pricing are all about positioning,” he said, adding that long-term drivers hadn’t changed.
Though bullion declined nearly 17% from the start of the war in late February to Monday’s close, 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.