Gold advances as dip-buying outweighs US-Iran war and US inflation worries

GOLD held gains on dip-buying even as hostilities in the Middle East pushed oil prices to multi-week highs, rekindling concerns that US inflationary pressure could prompt the US Federal Reserve to raise interest rates.

Bullion was trading around US$4,120 an ounce, after rising 3 per cent over the previous two days as dip-buying supported prices. This came as the US and Iran signalled that they are not ready to return to the negotiating table after escalating attacks.

Strikes on tankers transiting the Red Sea were also reported, the first since the conflict began in late February and potentially widening it. The waterway has been a vital workaround in particular for Saudi Arabian crude oil blocked behind the Strait of Hormuz. Yemen’s Iran-backed Houthis claimed responsibility.

Traders are now weighing the impact of higher energy prices against soft US economic data as they scan for clues about the US Fed’s path for interest rates. Elevated borrowing costs are a headwind for non-yielding bullion.

Gold had largely moved in an inverse relationship to Treasury yields during the conflict. This week, however, it held above the US$4,000 mark, which some traders see as a support level. It is still down by around a fifth since the US and Israel launched strikes on Iran in late February, after a multi-year bull run that had carried the metal to a record high near US$5,600 in January.

Spot gold was 0.2 per cent lower at US$4,120.28 an ounce as of 7.35 am in Singapore on Thursday (Jul 23). Silver slid 0.4 per cent to US$59.50 an ounce. Platinum and palladium also edged lower. The Bloomberg Dollar Spot Index, a gauge of the US currency, was flat after ending the earlier session little changed. BLOOMBERG