Gold Faces Worst Month in Over 17 Years as US Rate-Cut Hopes Dissipate
Gold Prices Rise on Hopes of De-escalation in Middle East Conflict
Gold prices rose on Tuesday, with spot gold increasing by 1.5% to $4,578.89 per ounce as of 0235 GMT. U.S. gold futures for April delivery also gained 1.2% to $4,611.30. This small gain, however, comes amidst a more concerning trend: a possible worst month for gold prices in over 17 years.
The decline in gold prices is largely attributed to higher energy prices, which have dimmed hopes for a U.S. interest rate cut this year. As a result, the dollar has eased, making greenback-denominated commodities more affordable for holders of other currencies.
The de-escalation of the Middle East conflict has contributed to the rise in gold prices. On Monday, U.S. President Donald Trump informed his aides that he is willing to end the U.S. military campaign against Iran, even if the Strait of Hormuz remains largely closed. This decision has triggered a risk-on response from financial markets.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
The stabilization of gold prices over the past week, including a significant rally last Friday, suggests that the markets are starting to see the Iran war as a recession risk. This is further supported by a drop in Treasury yields. Despite this, bullion has fallen by more than 13% so far this month, putting it on track for its steepest decline since October 2008.
| Month | Change in Gold Price |
|---|---|
| January 2024 | -4.2% |
| February 2024 | -3.1% |
| March 2024 | -13.4% |
| Total Change | -20.7% |
Gold tends to thrive in a low-interest-rate environment as it is a non-yielding asset. Before the war in the Middle East erupted, there were expectations of two Fed rate cuts for this year, according to CME Group's FedWatch tool. However, traders have almost completely priced out any chance of a U.S. Federal Reserve rate cut this year, as higher energy prices threaten to feed into broader inflation.
Spot silver rose 3.3% to $72.27 per ounce, spot platinum gained nearly 1% to $1,916.77, and palladium was up 2.3% at $1,437.76.
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Investor Takeaway
Investors should be cautious of potential market volatility due to ongoing global tensions.
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