Quick overview

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Gold saw a slight decline as fresh hostilities in the Middle East raised doubts about US-Iranian negotiations to end the conflict that has disrupted energy supplies and increased concerns about inflation.

The metal dropped as much as 0.6 percent to almost $4,460 per ounce before reducing losses. In response to reports in Iranian state media that talks with Washington had been halted due to fighting in Lebanon, President Donald Trump expressed optimism that the US and Tehran could soon reach an interim peace agreement. On Wednesday, Israel and Lebanon will hold another round of negotiations.

However, there were new attacks throughout the region, including US forces striking Qeshm Island in the Islamic Republic of Iran and Iran firing ballistic missiles at Kuwait and Bahrain, which either broke apart en route or were intercepted, according to a post on X by US Central Command.

For the third day in a row, oil prices rose, with Brent crude trading close to $97 per barrel. According to Ahmad Assiri, a market strategist at Pepperstone Group Ltd., “the flow of headlines continues to influence short-term market sentiment, and the Middle East remains a key source of uncertainty.”.

Investors are finding it difficult to determine the actual degree of risk associated with gold due to the recurring cycle of re-escalation and de-escalation. Since hostilities began in late February, bullion and oil have mostly moved in inverse proportion. It fell precipitously in the early days of the conflict and is still roughly 15% below its immediate pre-war level.

The metal has “maintained a pattern of lower highs, suggesting underlying sentiment remains fragile.

Precious metals, which don’t pay interest, are at a disadvantage because of the prolonged disruption to energy flows via the Strait of Hormuz, which has increased concerns about global inflation and increased the likelihood that central banks will maintain or even raise interest rates. The argument for higher borrowing costs is getting stronger as the war goes on, according to Bank of England policymaker Megan Greene.

This suggests that more officials may join Huw Pill, the bank’s chief economist, in urging action against inflation. In the meantime, job openings in the US increased to their highest level in nearly two years in April, according to data released on Tuesday, supporting predictions that the Federal Reserve will keep interest rates higher for a longer period of time.

Given the uncertainty surrounding the economic outlook, it makes sense to keep borrowing costs stable for the time being, according to Fed Bank of Cleveland President Beth Hammack, but officials may need to take immediate action to address inflation.