Gold prices gained as much as 1.8% to trade above $4,080 an ounce in Singapore, reaching its highest level in a week, spurred by dip-buying. This rise occurred despite ongoing Middle East tensions. Silver also saw gains, rising 4.3% to $58.86 an ounce, with platinum and palladium also increasing. The Bloomberg Dollar Spot Index, a measure of the U.S. currency, was slightly down by 0.1%.
The gold rally is, however, met with headwinds. Christopher Wong, an analyst at OCBC, noted that gold's upside might remain capped unless oil prices decline and expectations of Federal Reserve tightening recede, due to elevated borrowing costs being a disincentive for non-yielding bullion. Traders are currently evaluating the impact of higher energy costs and the possibility of the Federal Reserve raising interest rates against soft U.S. economic data. The metal found support around the psychological level of $4,000 an ounce, a sign of continued dip-buying.
The global geopolitical landscape is further complicated by renewed Middle East conflicts, which have driven oil prices to over a one-month high. This has led to discussions among policymakers about the potential need for further interest rate hikes to combat persistent inflation. Analysts from ING noted that the FX market is reacting to escalating tensions in the Gulf, with the U.S. Dollar finding broad support as a safe haven.
Despite the recent gains, the long-term outlook for gold is mixed. While central banks continue to be strong buyers, adding approximately 1,000 tonnes annually over the past four years, inflows into physically-backed gold ETFs have been inconsistent. In June, gold ETFs experienced net outflows of $8.9 billion, a 74-tonne decline in holdings. However, should inflation ease and Treasury yields fall, institutional investor demand for gold could increase. Russia's gold reserves saw a decrease of 1.4 million ounces, or 43.5 metric tons, since the start of the year, bringing their total to 73.4 million troy ounces as of early July.
