Gold prices dropped below the $4,200 per ounce mark amid renewed military clashes between the US and Iran. Additional pressure on the market is being exerted by rising US bond yields and expectations of a tighter monetary policy from the US Federal Reserve. This is reported by Bloomberg, according to UNN.
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On Wednesday, the precious metal fell by as much as 2.3% — to approximately $4,170 per ounce, following a 1.6% drop during the previous session. US forces launched strikes on Iranian facilities near the Strait of Hormuz after President Donald Trump accused Tehran of shooting down a US helicopter off the coast of Oman. Tehran's Islamic Revolutionary Guard Corps launched missiles at four American targets.
The latest clashes threaten a fragile ceasefire and risk a continued near-total closure of the Strait of Hormuz — a vital transit point for energy supplies from the Middle East to global markets
Oil prices initially recovered on Wednesday but stabilized after the US announced the end of its brief retaliatory campaign. Higher energy costs have heightened concerns about global inflation, which in turn has increased the likelihood that central banks will keep interest rates steady or raise them, a disadvantageous factor for non-interest-bearing precious metals.
Investors are shifting their focus to the US inflation report due on Wednesday for clues regarding the Federal Reserve's next steps. Some are already betting on a tighter monetary policy, which has pushed the yield on two-year US Treasury notes to its highest level in over a year.
Gold is trading approximately one-fifth lower than its level before the start of the war with Iran in late February. The metal's recent drop below its 200-day moving average — a widely accepted indicator of long-term momentum — triggered additional selling, as this level is considered crucial for institutional investors.
"We expect price dynamics to become more vulnerable in the near term" as the likelihood of a rate hike grows, noted Suki Cooper, head of precious metals research at Standard Chartered Plc, in a note. "Headlines from the Middle East also remain important; de-escalation would likely allow gold to recover as the need for liquidity decreases."