Gold prices are fluctuating near the $5,000 mark as investors assess the impact of a weaker US dollar and ongoing threats to global oil supplies, with the Middle East conflict now in its third week. During early trading, the price fell by 1%, briefly dropping below $5,000 before partially recovering. Influenced by rising energy costs and inflation fears stemming from the US-Iran-Israel conflict, gold declined for the second consecutive week last week. Meanwhile, the US dollar advanced across the board, posting a second weekly gain.
The uncertain duration of the conflict makes it difficult to gauge its effects on markets and the broader economy, keeping volatility elevated. US officials have suggested the conflict could last four to six weeks, while conflicting signals have emerged from both sides. Former US President Donald Trump stated that Iran is seeking a deal, but Washington wants more favorable terms, while Tehran has denied requesting negotiations or a ceasefire.
Over the weekend, US forces struck a key Iranian oil export hub, while Tehran continued attacks on energy infrastructure in countries around the Persian Gulf. Traffic through the Strait of Hormuz has been nearly paralyzed. This strategic waterway typically handles about one-fifth of global oil and liquefied natural gas shipments.
Although the pace of gold's rally has slowed since the conflict began, the metal is still up approximately 16% year-to-date. Concerns about stagflation—a combination of slowing economic growth and high inflation—may also lead investors to view gold as a superior long-term store of value.
This week, market attention will focus on interest rate decisions from several central banks, with the US Federal Reserve's announcement being the primary highlight. Recent US consumer spending data released on Friday showed barely any growth in January, even before the conflict erupted, due to weaker-than-expected economic expansion. The core PCE price index rose 3.1% year-over-year in January, while fourth-quarter GDP was revised down to 0.7%.
At the same time, US consumer confidence has fallen to a three-month low amid growing concerns in recent weeks about the conflict's impact on gasoline prices. Markets currently expect the Federal Reserve to hold off on interest rate cuts until at least September. Higher borrowing costs typically weigh on non-yielding precious metals.
Analysts note that gold's short-term movements are "mechanical," as the metal reacts to dollar strength and shifting expectations for rate cuts. However, over the long term, the conflict may support gold prices by "eroding trust in the US, not only among rival nations but also among a growing number of allies."
This week, the gold market is expected to exhibit high, event-driven volatility. For investors, the Federal Reserve's decision will be a critical turning point. Ahead of key meetings, some investors may choose to reduce exposure, increasing short-term selling pressure. Until a clearer direction emerges, the battle around the $5,000 level may continue. Caution is advised, with decisions best made after the Fed's announcement. From a long-term allocation perspective, gold's role as a defensive core asset and a hedge against systemic risks remains intact, suggesting that any pullback could present a medium- to long-term buying opportunity.
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