Gold Prices Surge as US Seeks Diplomatic Route to End Middle East War

Gold prices extended gains after reports that the US is seeking a diplomatic route to end the war in the Middle East, snapping the precious metal's nine-day losing streak. Bullion advanced as much as 1.8% to return above $4,500 an ounce, building on a 1.6% jump in the previous session.

Market Impact

The news led to a decline in oil prices and an increase in equities, while the Bloomberg Dollar Spot Index dropped 0.2%. Since the war began more than three weeks ago, gold has moved largely in tandem with stocks and in an inverse relationship with crude. Elevated energy prices resulting from the conflict have raised the risk of inflation, leading investors to bet on higher interest rates, a headwind for non-yielding precious metals.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Investor Behavior

In recent weeks, declines in global stocks and bonds have forced investors to sell their positions in gold to raise cash, further amplifying losses in bullion. The market remains on edge, with Iran maintaining a tight grip on the Strait of Hormuz and Israel continuing strikes on the Islamic Republic.

Central Bank Activity

Reports suggest that central banks are selling gold to defend their currencies. Turkey's central bank is preparing an expanded toolkit to defend the lira from war-related volatility, which includes potentially tapping its vast bullion reserves. The bank has also held discussions about possible gold-for-foreign-currency swap transactions in the London market.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Market Data

• Spot gold rose 1.6% to $4,546.55 at 8:03 a.m. Singapore time.
• Silver gained 2.4% to $72.89 an ounce.
• Platinum and palladium advanced.
• The Bloomberg Dollar Spot Index fell 0.2%.