Gold Prices Firm on Safe-Haven Demand Amid Ongoing Inflation Concerns

Gold Edges Higher Amid Middle East Tensions

Gold prices rose on Tuesday as investors sought safe-haven assets after a flare-up in hostilities in the Middle East pushed prices down by 2% on Monday. Bullion rose as much as 0.6% to reach $4,550 an ounce, with spot gold trading at $4,541.79 an ounce at 11:14 a.m. in Singapore.

The US military reported fighting off attacks from Iran on Monday as it facilitated the passage of two US-flagged vessels through the Strait of Hormuz. The United Arab Emirates (UAE) also intercepted cruise missiles fired by Iran and blamed an Iranian drone strike for a large fire at its Fujairah port. The violence shook a ceasefire that has largely held since going into effect on April 8, and raised inflation and rate-hike risks.

Oil prices surged on the reports, while 30-year Treasury yields rose to the highest since July. This move is seen as a sign that traders are boosting wagers that the Federal Reserve will have to boost interest rates to curb inflation. This is negative for non-yielding bullion.

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

Analysts from State Street Investment Management, including Aakash Doshi, believe that gold can perform if the Fed is on hold, as long as consensus and Fed forward guidance point towards future easing. They also predict that bullion will be supported around the $4,000 an ounce level if it falls further on expectations for a hawkish Fed.

Traders are looking to this week's announcement of the US Treasury Department's borrowing plans for the next three months and a loaded calendar of economic releases for further clues on the trajectory of rates.

The Bloomberg Dollar Spot Index, a gauge of the US currency, was marginally higher after rising 0.2% on Monday.

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