Inflation, a possible increase in the Fed’s reference rates and war in the Middle East continue to impact the price of gold, which temporarily returns below $4,000 an ounce.
By now the trend seems clear: ad an increase in tension in the Persian Gulf between the United States and Iran corresponds to a loss in the value of gold. This week has only confirmed expectations.
The price of gold in recent weeks
In fact, the yellow metal is starting to record the worst weekly performance in over a month and a half. Despite a slight intraday rebound (with a brief return above the psychological threshold of 4000 dollars per ounce), the precious metal has lost more than 3% of its value in the past week, the steepest drop since June 1.
After the recovery at the beginning of June, in which gold managed to exceed the $4300 an ounceexpectations of a further interest rate hike by the Federal Reserve, as well as a strengthening of the dollar against other currencies, prompted forced liquidations of numerous gold futures contracts, with the price falling below $4,000 an ounce.
From there, a brief recovery between the end of June and the beginning of July, thanks to the truce in the Middle East and more accommodating statements regarding inflation and interest rates by the new head of the Fed, Kevin Warsh.
The recovery, which saw the yellow metal once again exceed 4100 dollars an ounce, however, it was short-lived.
The black week of gold
The main person responsible is the rapid worsening of the conflict between the United States and Iran. The cross-attacks caused the price of oil to jump about 12% in just one week, with supply disruptions from the Strait of Hormuz.
The effects on gold, as we have been taught in recent months, have been direct: the yellow metal fell from a price of just under 4,100 dollars an ounce on Friday 10 July, at the current 3990-4000 dollars.
A level that the yellow metal has not reached since the end of June, also thanks to the tightening of the Fed’s rhetoric on rates, with swap markets now pricing with a probability of around 40% an increase already at the meeting at the end of July.
Inflation and rates always at the center
The rise in crude oil fuels new developments inflationary concerns in the United States, reinforcing expectations of a more aggressive intervention by Federal Reserve on interest rates. In a high interest rate environment, gold (which produces no returns or coupons) loses attractiveness compared to more profitable assets such as US Treasury assetsprompting investors to liquidate positions in the precious metal.
Even the US inflation data for June, softer than expected with a drop of 0.4% on a monthly basis, were largely overshadowed by the energy boom linked to the crisis in the Middle East. The wave of sales involved the entire precious metals sector: silver, platinum and palladium also recorded significant weekly declineswith silver among the most penalized.
The market is now waiting for developments on the Iranian front. A prolonged escalation of the conflict could continue to penalize golddespite its traditional role as a safe haven in times of geopolitical uncertainty, a possible definitive resolution of the crisis (which, however, still appears distant), could reignite the gold rush of the beginning of the year.
