Gold Prices Stable Amid Iran Conflict Ceasefire Uncertainty

Global Markets Remain Tense as Iran War Continues

Gold prices steadied on Wednesday after a two-day gain, as traders weighed the prospect of a diplomatic resolution to the Iran war. Despite sporadic fighting threatening to derail a fragile ceasefire, the White House announced that the US would hold direct talks with Iran. Meanwhile, Tehran cast Israeli attacks in Lebanon as a violation of a day-old ceasefire and continued strikes on Gulf states.

The Strait of Hormuz remained largely blocked, despite Iran's assurances of safe passage. As a result, oil prices rebounded after their biggest one-day drop since April 2020, while stocks gained and a gauge of the dollar fell on Wednesday. This supported gold, which is priced in the US currency and has traded largely in tandem with stocks since the war began nearly six weeks ago.

The war has driven a spike in energy prices and raised inflationary risks, making it more likely that central banks will delay cutting interest rates or even hike them. This is a headwind for non-yielding gold, which benefits when borrowing costs are low. However, a protracted war could also lead to a slowdown in growth, hurting the labor market and warranting lower rates.

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This dichotomy is reflected in the minutes of the Federal Open Market Committee's March 17-18 meeting, which showed policymakers wrestling with these starkly different scenarios for the US economy.

Market Update

Spot gold edged 0.1% lower to $4,715.10 an ounce at 6:13 a.m. Singapore time.

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