Military actions by the United States in the Strait of Hormuz and subsequent responses from Iran have significantly dampened market expectations for negotiations to restore the free flow of this critical waterway, all while inflationary pressures remain elevated. In this context, the price of gold has declined.
On Tuesday, gold prices erased all gains from the previous session, falling more than 1%, driven by concerns that military actions could disrupt diplomatic progress. Concurrently, both Brent and WTI crude oil prices advanced, gaining nearly 3%.
The United States Central Command issued a statement confirming that U.S. forces had struck Iranian missile launch sites and vessels attempting to lay mines. Spokesperson Tim Hawkins stated the action was defensive in nature, aimed at "protecting our forces from threats posed by Iranian forces."
Iran subsequently responded. According to reports, the public relations department of Iran's Islamic Revolutionary Guard Corps stated on the 26th that it had shot down a U.S. MQ-9 "Reaper" drone in Iranian airspace over the Persian Gulf.
On the same day, Iranian media also reported that Iran's Supreme Leader, Mojtaba Khamenei, stated via social media that regional countries would no longer act as a "shield" for U.S. bases and that the U.S. would lose its "safe haven" in the region.
Amid the regional tensions, Israel also signaled a more hardline stance, stating it would intensify strikes against Hezbollah in Lebanon as U.S.-Iran negotiations progress. Iran explicitly stated that any peace agreement must include a condition to halt hostilities in Lebanon.
Prior to this series of escalations, the U.S. President stated on Monday that negotiations with Iran regarding an extension of a ceasefire agreement and a temporary arrangement to ease restrictions on passage through the Strait of Hormuz were "proceeding well."
An analyst at Phillip Nova, Priyanka Sachdeva, noted in a report that while the market occasionally finds temporary support from prospects of peace, traders overall have not been convinced that stability has been restored.
Kelvin Wong, a senior market analyst at OANDA, also commented that even if a peace agreement is reached between the U.S. and Iran, the reality of damaged oil production facilities in the Middle East could still slow the process of normalizing crude exports from the region, and the market has already begun pricing this in.
Since the conflict escalated in late February, the gold price has fallen by approximately 14%. Rising energy prices due to the conflict have further increased inflation expectations, prompting the market to raise bets on interest rate hikes. In an environment of rising borrowing costs, gold, which yields no interest, faces significant pressure.
The CME FedWatch Tool indicates the market expects the Federal Reserve to implement a rate hike by year-end, with a 56% probability assigned to a December hike.
John Reade, Chief Strategist at the World Gold Council, stated that for a sustained rebound, gold needs to decouple from its correlation with risk assets. He also noted that even if the current conflict subsides, considering the time required for the energy market to rebalance, "the likelihood of a gold recovery before year-end is greater."
Comments