Gold prices steadied on Monday, finding a precarious balance after an initial sell-off, as a weaker U.S. dollar and persistent geopolitical tensions partially offset the market's fading expectations for near-term Federal Reserve interest rate cuts.
Spot gold edged up 0.2% to $5,027.98 per ounce by late morning trading in Asia, recovering from a more than three-week low hit earlier in the session. The metal traded on both sides of the psychologically significant $5,000 level, reflecting a market caught between competing macroeconomic forces. U.S. gold futures for April delivery showed a slight divergence, falling 0.6% to $5,031.60.
The primary support came from a softer greenback and lower Treasury yields. The Bloomberg Dollar Spot Index slipped 0.3%, making dollar-denominated bullion cheaper for holders of other currencies. Concurrently, a dip in U.S. 10-year Treasury yields increased the relative appeal of non-yielding gold.
However, this support was counteracted by a significant headwind: soaring energy prices that have revived inflation concerns and pushed back the timeline for anticipated Fed easing. Oil prices remained firmly above $100 a barrel as the U.S.-Israeli military campaign against Iran entered its third week. The conflict has placed critical oil infrastructure at risk and led to a near-total closure of the Strait of Hormuz, a chokepoint for roughly one-fifth of the world's seaborne oil.
"Gold prices are holding broadly steady as the market navigates competing macro forces," said Christopher Wong, a strategist at OCBC. "Safe-haven demand amid ongoing geopolitical tensions continues to lend support, but rising oil prices have also revived inflation concerns."
The resulting inflationary pressure complicates the Federal Reserve's policy path. While higher crude prices can bolster gold's appeal as an inflation hedge, they also force markets to reconsider the likelihood of imminent rate cuts. Higher interest rates increase the opportunity cost of holding gold, which pays no interest.
Market participants now see virtually no chance of a rate reduction at the Fed's policy meeting concluding on Wednesday, where officials are widely expected to hold rates steady for a second consecutive meeting. The war's disruption has injected significant uncertainty into the economic outlook, making it difficult for policymakers to commit to an easing cycle.
President Donald Trump added to the geopolitical uncertainty over the weekend. He stated that his administration is in talks with seven countries about helping to secure the Strait of Hormuz and threatened further strikes on Iran's main oil export hub, Kharg Island. Trump also said he was not ready to reach a deal to end the war, contradicting earlier signals that Iran wanted to negotiate.
"In the near term, (gold's) price action may remain choppy as markets reassess the Fed policy path and the trajectory of real yields," Wong added.
The war's duration remains a key unknown. Aides to President Trump have suggested the conflict could last four to six weeks. The prolonged disruption to global energy supplies represents the largest such shock on record, with independent research firm Rystad Energy estimating over 12 million barrels of oil equivalent per day have been taken offline since the Strait of Hormuz closed.
Other precious metals showed mixed performance. Spot silver fell 0.3% to $80.33 per ounce. In contrast, platinum gained 1.7% to $2,059.21, and palladium rose 1.2% to $1,569.99.
Despite the recent consolidation and back-to-back weekly declines, gold has maintained a substantial gain for the year, up approximately 16% and largely holding above the $5,000 mark. Analysts note that the conflict's longer-term erosion of trust in U.S. security guarantees among allies and adversaries alike could provide a structural tailwind for gold. However, in the immediate future, the metal's trajectory will likely hinge on the evolving balance between persistent safe-haven bids and the shifting calculus for U.S. monetary policy.
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