Teaser: Gold edged up to $4,780 per ounce on Friday, heading for a third straight weekly gain, buoyed by a weaker dollar and investor focus on US-Iran diplomatic talks in Islamabad this weekend. The metal rose 2% this week as concerns about inflation and oil prices were allayed by a two-week ceasefire, while non-yielding assets were bolstered by anticipation of earlier US rate cuts. However, Israeli assaults on Lebanon and persistent disturbances in the Strait of Hormuz threatened to complicate negotiations, and the precarious truce began to show signs of strain on Friday. In the meantime, the most recent US CPI report—the first since the start of the conflict—showed that inflation had risen to 3.3%, the highest level since May 2024, with the monthly index rising by 0.9%, the sharpest increase since mid-2022. There is about a 30% possibility that rates will be reduced by at least 25 basis points in December. In physical markets, premiums in hina decreased as retail demand eased, while gold demand in India increased somewhat ahead of a significant festival.
Introduction:
Gold remained under pressure, extending its corrective phase as elevated energy prices and geopolitical tensions fueled inflation concerns and delayed expectations ofmonetary easing. Prices held near support but struggled to sustain recovery, as a firmer dollar and rising yields weighed on sentiment. Intermittent optimism around diplomacy offered brief relief, but gains lacked conviction. Bullion drifted lower again, with safe-haven demand failing to offset tightening financial conditions, leaving prices in a weak consolidation, though renewed tensions may begin to restore upside momentum. Silver followed a similar path with sharper volatility, reflecting sensitivity to macro and industrial signals. Prices hovered near lows as rising energy costs and tighter financial conditions dampened industrial demand. A short-lived rebound on improving sentiment was capped by a stronger dollar and elevated yields. The metal slipped back within range, highlighting fragile momentum, and remained below prior highs, though renewed geopolitical risks may trigger a sharper rebound. Crude oil remained the key driver, trading at elevated levels amid disruptions to supply routes and rising geopolitical risks. Prices surged early on concerns over prolonged supply constraints, supported by restricted flows and threats to infrastructure. Profit-taking emerged at higher levels, but downside remained limited as supply risks persisted. The market continued to price a tight near-term balance, with volatility elevated and direction tied to geopolitical developments, suggesting further escalation could keep prices supported at higher levels.
Gold:
Gold dropped about 2% to below $4,700 an ounce on Monday, reversing gains from last week as US plans to blockade the Strait of Hormuz following failed weekend talks with Iran heightened concerns over a worsening global energy crisis. The restrictions will apply only to vessels entering or leaving Iranian ports starting at 10 a.m. Eastern Time. Negotiations in Pakistan failed to produce an agreement, with the US accusing Tehran of refusing to curb its nuclear ambitions, while Iran reportedly sought control of the strait, war reparations, a regional ceasefire, and access to frozen overseas assets. The effective shutdown of the critical shipping route has driven energy prices sharply higher and intensified inflation risks, reinforcing expectations that central banks may delay rate cuts or even tighten policy further. This dynamic has weighed on gold, leaving it down more than 10% since the conflict began.
