On July 22, analysts suggested that short-term declines do not alter gold's long-term value as a safe-haven asset, and the current pullback may instead present an opportunity for repositioning.
Since the outbreak of the Iran war on February 28, the price of gold has fallen by a cumulative 22%. This trend deviates from traditional safe-haven logic, as geopolitical conflicts typically drive investors to buy gold to hedge against inflation and uncertainty.
Giovanni Staunovo, a commodity strategist at UBS Global Wealth Management, noted that markets might be betting the Federal Reserve will raise interest rates due to rising inflation pressures. Since gold yields no income, its appeal diminishes in an environment of higher real rates.
Furthermore, market rumors previously suggested some Middle Eastern central banks sold gold for cash during the conflict, though only transactions by the Central Bank of Turkey have been confirmed. World Gold Council data shows the Turkish central bank sold 81 tonnes of gold in the first half of the year, equivalent to approximately $10.6 billion at current prices.
However, over a longer horizon, gold's performance remains robust. Over the past 12 months, gold has risen about 21%, slightly outperforming the S&P 500 index. Analysts believe the recent adjustment has not diminished gold's role as a risk-hedging asset.
Additionally, analysts stated that escalating U.S.-Iran tensions have pushed oil prices higher, reigniting inflation concerns and, in turn, supporting the Federal Reserve's continuation of a hawkish stance. Currently, the market views September as a critical window for the Fed's next potential rate hike.
BlackRock estimates the conflict could raise global headline inflation by about 0.8 percentage points, though its impact will vary across regions.
In a report, BlackRock pointed out that Europe and parts of Asia, being more reliant on energy imports, are more susceptible to the effects of global headline inflation.
Analysts at OCBC concur with this view, stating, "Given that labor market data suggests the economy is stabilizing rather than deteriorating, a new energy shock will make the Fed more focused on the upside risks to inflation."
Yung-Yu Ma, Chief Investment Strategist at PNC Asset Management Group, commented that while rising profit margins for small and mid-cap U.S. companies is a positive development, "it's uncertain whether these trends can withstand several quarters of rising oil prices and persistent inflation pressures."
Key data to watch today includes the UK's June CPI year-on-year rate, the UK's June Retail Price Index year-on-year rate, and the UK's June non-seasonally adjusted Input Producer Price Index year-on-year rate.
Gold/USD
Gold moved higher in a choppy session yesterday, reaching a fresh five-day high, with the spot price currently trading around $4,130. Support was provided by technical buying interest around the $4,000 level, along with a glimmer of hope for Middle East negotiations from a proposed 10-day ceasefire. However, revived expectations for Federal Reserve rate hikes capped the metal's upside. Resistance near $4,200 is in focus today, with support seen around $4,050.
USD/JPY
The USD/JPY pair advanced in volatile trading yesterday, breaking above the 163.00 level, with the current spot price near 163.10. The move was underpinned by a stronger U.S. dollar index, supported by renewed Fed rate hike expectations and safe-haven demand, alongside rising U.S. Treasury yields. However, concerns over potential renewed Japanese intervention in the currency market limited further gains. Resistance near 164.00 is eyed today, with support around 162.00.
USD/CAD
The USD/CAD pair climbed in a volatile session yesterday, breaking through the 1.4100 level to hit a fresh five-day high, with the current spot price around 1.4100. The primary driver was a stronger U.S. dollar index fueled by heightened expectations for Fed rate hikes. Additional support came after former President Trump announced a 50% tariff hike on certain Canadian goods. However, rising crude oil prices limited the pair's advance. Resistance near 1.4200 is a focus today, with support around 1.4000.
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