Gold Prices Rebound Amid Weakening Speculation of Yen Intervention

Gold Rallies as Dollar Falls Amid US-Iran Tensions

Gold prices rebounded from a three-day decline, rising as much as 2.2% to trade above $4,600, as the US dollar sank against a basket of other currencies. The dollar's decline tends to boost gold, making it cheaper for buyers in other currencies.

The US dollar fell 0.6% against a basket of other currencies, following speculation that Japan is intervening in the foreign-exchange market to support the yen. This move has contributed to the dollar's weakness, which in turn has lifted gold prices.

Despite the recent rally, gold has still fallen about 13% since the war began in late February, as traders bet that central banks will need to keep borrowing costs higher to curb the inflationary impact of higher energy prices. This has created a headwind for gold, which does not yield interest.

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

The precious metal has traded in the opposite direction to oil throughout most of the US-Iran war. Crude futures fell in a volatile session on Thursday, after rallying earlier on an Axios report that the head of US Central Command would brief President Donald Trump about military options, signaling a resumption of combat operations is under consideration.

Analysts remain bullish on the precious metal, with the latest data by the producer-funded World Gold Council showing that central banks added gold holdings at the fastest pace in more than a year in the first quarter. This buying wave more than offset sales by a handful of institutions.

The medium-term structural case for gold remains supported by central bank demand and reserve diversification flows. However, the shift in environment for gold argues for caution in gold prices, unless oil prices ease lower.

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