Gold Prices Surge Amid Rising Tensions Over Hormuz Strait Crisis

Gold Rallies on Chinese Central Bank Buying Amid Middle East Tensions

Gold prices rose on Thursday as signs of buying interest emerged following strong purchases by China's central bank. Despite fresh clashes in the Middle East, which threatened to fracture a fragile ceasefire, bullion traded near $4,720 an ounce.

The United States struck military targets in Iran after the country fired on three navy destroyers sailing in the strait, heightening tensions in the region. The conflict, now in its third month, has had a significant impact on gold prices, with bullion falling around 11% since the conflict erupted.

However, there are signs that central bank demand for gold may continue. The People's Bank of China, among the biggest official sector buyers of the precious metal, bought 8 tons in April, the highest purchases since 2024. This extension of a buying streak can be encouraging for Asian buyers, as it suggests that central banks are positioning themselves for a potential rally in gold prices once the worst of the Middle East conflict is over.

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

Central Bank Gold Purchases

The People's Bank of China's buying activity is a major contributor to gold's multiyear rally. Gold has fallen around 11% since the conflict erupted, as the near-closing of the Strait of Hormuz and resulting energy price shock fanned concerns about rising inflation that would keep interest rates higher for longer.

Higher rates and a stronger US currency are negative for bullion as it pays no interest and is priced in the greenback. Traders will be tracking the change in US non-form payrolls due for release later Friday for clues on the trajectory of rates. Some Federal Reserve officials have played down the prospect of an eventual return to monetary easing, given the war is clouding the economic outlook and creating uncertainties.

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

Spot gold rose 0.8% to $4,721.05 an ounce as of 11:28 a.m. in Singapore, and was up 2.3% for the week. Silver climbed 1.8% to $79.84, while platinum and palladium advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, added 0.1%, but was down 0.2% this week.