Gold and silver prices experienced an uptick due to dip-buying by traders, who are closely monitoring developments in the Middle East. These tensions are creating concerns that higher energy costs could exacerbate inflation, potentially pushing the Federal Reserve to implement tighter monetary policies. Bullion saw a rise of up to 1.9%, trading above $4,080 per ounce, while silver surged by as much as 5%, reaching just under $60 an ounce. This marks a rebound for both precious metals after two consecutive weeks of losses.
Despite the recent geopolitical tensions, gold is showing support around the key psychological level of $4,000 an ounce, indicating continued dip-buying behavior. This pattern was also observed in the previous week. Christopher Wong, an analyst at OCBC, noted that gold's upward movement might be limited unless oil prices decrease and expectations for Fed tightening ease. Spot gold was 1.8% higher at $4,078.44 an ounce in Singapore.
Several factors influenced the market. Spot gold gained 0.5% to $4,023.56 per ounce, and U.S. gold futures for August delivery increased by 0.3% to $4,028. Oil prices softened, with Brent crude settling at $91.01 a barrel and WTI at $84.91, amidst reports of mediation efforts between the U.S. and Iran. However, threats of a naval blockade on Saudi Arabia by Yemen's Houthis present a risk of future oil price spikes. Higher interest rates typically increase the opportunity cost of holding non-yielding assets like gold.
Spot silver also saw significant gains, rising by 4.3% to $58.86 an ounce, while platinum and palladium experienced increases. The Bloomberg Dollar Spot Index, which measures the U.S. currency, was slightly lower by 0.1%. While some analysts suggest that the current market move is more reflective of dip-buying than new geopolitical developments, traders are closely watching ceasefire headlines, Federal Reserve communications, and potential disruptions to shipping lanes in the Strait of Hormuz and the Red Sea.
September hike odds for the Federal Reserve are currently around 63%, down from 90% before recent inflation data, but still high enough to keep rate hike risks relevant. The 2-year Treasury yield rose to 4.261%, and the 10-year yield climbed to 4.628%. The U.S. dollar index remained firm, trading near 101.22. A sustained hold above $4,072.40 for gold would improve its short-term outlook, while a drop below $4,041.65 would indicate that higher yields are once again gaining control.
