Gold Prices Remain Stable Amid Escalating Tensions Over US-Iran Conflict

Gold Prices Steady Amid US-Iran Tensions

Gold prices have steadied as traders weigh conflicting statements from the US and Iran about negotiations to end the war in the Middle East. In early trading, bullion was near $4,520 an ounce, having gained more than 2% over the previous two sessions.

The White House has compiled a 15-point peace proposal as part of ongoing talks with Iran, while Tehran has publicly rejected US overtures to end the conflict and issued its own conditions. Despite pursuing diplomacy, the US has ordered thousands of troops to the region, fueling fears of a ground invasion.

Since the war began nearly a month ago, gold has fallen nearly 15%, moving largely in tandem with stocks and in an inverse relationship with oil. Spiking energy prices have raised the risk of inflation, leading investors to bet that central banks will keep interest rates unchanged or hike them. This is a headwind for non-yielding bullion.

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The prospect of a rate hike by the Federal Reserve may be moderated by the risk of an economic downturn in the US caused by a protracted war. Wall Street is cutting its forecasts for the American economy this year, boosting its projections for inflation and unemployment and nudging up the odds of a recession.

Frothy positioning is likely to remain vulnerable in the near term, according to analysts from Standard Chartered Plc, including Sudakshina Unnikrishnan. Around 85 tons of gold holdings in exchange-traded funds have been redeemed since the war began, according to a Bloomberg calculation. Even at $4,500 an ounce, a further 83 tons of holdings remain lossmaking and therefore vulnerable to liquidation, totaling around $12 billion based on gold's closing price on Wednesday.

Spot gold rose 0.4% to $4,522.60 an ounce at 8:13 a.m. Singapore time, while silver advanced 0.4% to $71.52. Platinum and palladium also gained. The Bloomberg Dollar Spot Index was flat after ending the previous session up 0.2%.