Gold Prices Rise Amid Rate-Cut Speculation and Escalating Diplomatic Efforts to End Conflict

Gold Prices Rise as Traders Bet on Potential Rate Cuts

Gold prices continued their upward trend for the fourth straight session, with bullion rising as much as 2.7% to approach $4,800 an ounce before trimming gains. The surge in gold prices comes as traders increasingly believe the Federal Reserve may need to cut interest rates to mitigate a possible economic downturn, despite hopes that the war in the Middle East may be nearing a conclusion.

The conflict in the Middle East has sent shockwaves through global markets, disrupting energy and other goods supplies and triggering concerns about a spike in inflation. These concerns have overshadowed gold's traditional appeal as a safe-haven asset, but bond traders are now shifting their focus to the war's impact on economic growth. The shift in narrative from inflation to growth risk has led to a reduction in bets that central banks will hike rates to tame inflationary risks arising from the conflict.

The Federal Reserve, led by Chair Jerome Powell, has indicated that longer-term inflation expectations remain anchored. Lower interest rates are typically positive for non-yielding gold, which does not pay interest. Powell's comments come as investors await a speech by US President Donald Trump on the Middle East conflict, which is now in its fifth week.

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Trump is expected to hail his military campaign in Iran as a success during his prime-time address, stressing that the conclusion of operations may come in two-to-three weeks. The speech will cast the US as having met or exceeded all of its military goals. Iran has listed certain requirements to end the fighting, including authority over the Strait of Hormuz, a crucial waterway that was a transit point for around a fifth of the world's oil and liquefied natural gas before the war.

Retail Sales Exceed Estimates

Separately, February retail sales exceeded economist estimates, as did ADP Research's estimate of March private-sector hiring. Fed policymakers cut interest rates three times last year in reaction to signs of job-market weakness that have since abated somewhat.

Despite the rebound in the past few days, bullion's near 12% decline in March was its worst monthly performance since October 2008. Retail buying slowed in the initial days of gold's March plunge, as customers' expectations of a rally were confounded by the escalating conflict in Iran. However, in the last week or so, retail buyers have been busy again, with a focus on inflation rather than higher interest rates.

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

Goldman Sachs Group Inc. retains a bullish view on gold, with analysts Lina Thomas and Daan Struyven keeping a year-end forecast of $5,400 an ounce. They cite continued purchases by central banks and a forecast of two more rate cuts in the US this year.

As of 4:59 p.m. in New York, spot gold rose 1.9% to $4,758.57 an ounce, while silver was little changed at $75.08. Platinum edged higher, and palladium dipped. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.2%.