Middle East Conflict Sustains High Oil Prices, Gold Briefly Dips Below $5,000

As the Middle East conflict enters its third week, oil prices have risen following attacks on key energy infrastructure over the weekend, while the price of gold briefly fell below $5,000 per ounce.

Gold prices dropped by as much as 1% during early trading, extending a two-week losing streak. Rising energy prices and inflation concerns stemming from the Middle East tensions have reduced market expectations for interest rate cuts by the Federal Reserve and other central banks. Oil prices climbed after Tehran launched retaliatory strikes on energy infrastructure in several Arab countries, responding to a U.S. attack on a major Iranian oil export hub.

The uncertain duration of the conflict makes it difficult to assess its impact on markets and the broader economy. A senior advisor to U.S. President Donald Trump suggested the conflict could last four to six weeks, although both sides have sent mixed signals. Trump stated that Iran wants a deal but the U.S. is seeking better terms, while Tehran has denied requesting negotiations or a ceasefire.

As the conflict continues, the prospect of interest rate cuts appears increasingly remote. Recent U.S. consumer spending data released on Friday showed nearly no growth in January, with economic momentum weakening even before the Iran conflict. At the same time, U.S. consumer confidence fell to a three-month low amid growing concerns that the conflict with Iran could drive up gasoline prices.

Traders now see almost no chance of a rate cut at this week's Fed meeting. Higher borrowing costs typically weigh on non-yielding precious metals. Although rising oil prices may add pressure on gold in the short term, concerns about stagflation—a combination of slowing growth and high inflation—could drive investors toward gold as a better store of value over the longer term.

As of 8:00 a.m. Singapore time, spot gold was down 0.7% at $4,983.62 per ounce; silver fell 0.8% to $79.97 per ounce; platinum and palladium prices also declined. The Bloomberg Dollar Spot Index dropped 0.2%, after gaining more than 1% last week.