(Bloomberg) — Gold pared gains as the dollar recouped some losses, with conflicting news about the war in the Middle East whipsawing oil prices and obscuring the outlook for US interest-rate cuts.
Oil and the greenback trimmed declines as the White House said the US hasn’t escorted an oil tanker through the Strait of Hormuz — a key conduit for energy shipments — contradicting a since-deleted social media post by Energy Secretary Chris Wright.
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The conflict continues to disrupt crude production and refining in the Middle East. The US and Israel are conducting their most intense day of attacks yet against Iran and won’t give up until the Islamic Republic is beaten, the Pentagon said earlier Tuesday, striking a more aggressive tone after Trump’s earlier indication that the war could end soon.
For gold traders, falling but still-elevated oil prices mean that inflation will be higher but won’t be so high as to prevent the US central bank from cutting rates this year, according to Bart Melek, global head of commodity strategy at TD Securities. That’s positive for bullion as it pays no interest.
Before Trump said on Monday that the Iran war could end “very soon,” investors were expecting that the Fed and its global peers would have to hold rates steady or even hike them to contain inflation amid surging energy prices — a potential negative for gold. Some investors also used bullion as a source of liquidity during a deepening equities rout.
While trading has been choppy and upward momentum has stalled, gold has still gained around a fifth this year. Trump’s upheaval of global trade and geopolitics, as well as threats to the Fed’s independence, have broadly supported safer assets.
Since war broke out, however, the volume of gold held by exchange-traded funds has declined. Total holdings fell by nearly 30 tons last week, marking the biggest weekly selloff in more than two years, according to data compiled by Bloomberg.
Spot gold rose 1.2% to $5,197.72 an ounce as of 3:14 p.m. in New York. Silver rose 1.6% to $88.39. Platinum rose while palladium slipped. The Bloomberg Dollar Spot Index fell 0.2%.
–With assistance from David Ingles, Yvonne Man, Yihui Xie, Jack Ryan and Kanupriya Kapoor.
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