Gold steadies near $5,000 as Iran conflict clouds Fed rate outlook

Yesterday 08:20

By: Dakir Madiha

Gold steadies near $5,000 as Iran conflict clouds Fed rate outlook

Gold traded near the $5,000 per ounce mark on Monday as the United States and Israel conflict with Iran entered its third week, while rising oil prices complicated expectations for interest rate cuts by the Federal Reserve and limited the metal’s upward momentum.

Spot gold edged up about 0.1 percent to roughly $5,022 during early Asian trading after falling as much as 1 percent earlier in the session, according to Bloomberg data cited by the Business Times. The precious metal has retreated about $200 from the peaks above $5,200 reached earlier this month and is on track for a second consecutive weekly decline, the first back to back losses since November.

Energy markets have been heavily affected by the conflict. Iran’s effective blockade of the Strait of Hormuz, a route through which about one fifth of global oil supply passes, pushed Brent crude above $104 per barrel, according to Al Jazeera. The price has risen more than 40 percent since hostilities began on March 1.

The International Energy Agency described the disruption as the largest shock to global energy supply on record.

The surge in oil prices has complicated the Federal Reserve’s policy outlook ahead of its two day meeting starting March 17. Traders now see virtually no chance of a rate cut this week, with the central bank widely expected to keep its benchmark rate between 3.5 percent and 3.75 percent.

Earlier this year, investors had expected the first reductions to begin as early as July. However, the New York Times reported that market expectations have shifted, with traders now anticipating possible cuts only from September. Higher interest rates typically weigh on gold because the metal does not generate yield.

Geopolitical tensions have also unsettled financial markets. Over the weekend, the United States struck Iran’s main oil export hub while Tehran continued attacks on energy infrastructure across the Persian Gulf.

A senior adviser to President Donald Trump said the conflict could last four to six weeks. Iranian officials indicated that Tehran has not requested negotiations or a ceasefire.

Trump said Friday that United States forces had “completely obliterated every military target” on Kharg Island, a facility responsible for handling roughly 90 percent of Iran’s crude oil exports.

Economists say the Federal Reserve is likely to remain cautious while the conflict continues. Mark Zandi, chief economist at Moody’s, said policymakers would avoid major decisions until they have a clearer understanding of developments in Iran, a process that could take several weeks.

Kyle Rodda, an analyst at Capital.com, said gold’s short term movements remain closely tied to the strength of the dollar and expectations for rate cuts. However, he added that prolonged conflict could support gold over time if geopolitical tensions weaken global confidence in the United States.

Despite the recent pullback, gold remains up about 16 percent since the beginning of the year. Concerns about stagflation, defined as slower growth combined with persistent inflation, may continue to drive investors toward the metal as a safe haven, though further gains could be limited if central banks respond aggressively to rising price pressures.