Gold prices edged higher on Thursday after reaching their lowest level since early August in the previous session, with investors balancing geopolitical risks in the Middle East against expectations of further monetary tightening by the Federal Reserve.
At 04:42 ET (08:42 GMT), spot gold increased 0.3% to $4,123.76 an ounce, while gold futures advanced 0.2% to $4,148.30 an ounce.
The modest recovery came as renewed attacks on commercial shipping near the Strait of Hormuz heightened concerns about global energy supplies and the inflationary consequences of higher oil prices.
Iran has reportedly intensified attacks on tankers passing through the waterway, adding to uncertainty surrounding one of the world’s most important routes for crude oil shipments.
Media reports also indicated that the White House was considering possible military action against Iranian targets ahead of the US midterm elections in November.
Although Middle Eastern oil shipments briefly recovered to pre-conflict levels in September, continued security threats around the Strait of Hormuz and the Bab el-Mandeb Strait have pushed maritime transportation costs to record highs.
Neil Welsh, Head of Metals at Britannia Global Markets, said diplomatic efforts between Washington and Tehran remained stalled.
“US-Iran nuclear negotiations remain at an impasse, with disagreements over uranium enrichment rights continuing to prevent progress, while geopolitical uncertainty across the Middle East remains elevated,” Welsh said in a note.
Gulf Coast Production Shutdowns Add to Inflation Concerns
Disruptions to energy production along the US Gulf Coast have added another source of uncertainty for commodity markets.
Severe weather in the region has forced oil and gas operators to suspend a substantial proportion of offshore production.
According to Marine Minerals Administration figures cited by Reuters, producers had shut down more than a quarter of current oil output and over 16% of natural gas production by Wednesday.
The reductions have increased concerns about near-term energy availability, particularly as Middle Eastern shipping routes face renewed security threats.
Higher oil and gas prices have contributed to inflationary pressures, raising the possibility that central banks may need to maintain restrictive monetary policies for longer.
For gold, the prospect of elevated interest rates represents a significant challenge because bullion does not provide an interest return.
When yields on government bonds and other interest-bearing investments increase, the opportunity cost of holding gold generally rises.
Fed Policymakers Support Further Tightening Before Year-End
Minutes from the Federal Reserve’s September meeting reinforced expectations that US interest rates could increase again before the end of 2026.
All 19 policymakers supported the rate increase implemented in September, while most believed another rise would likely be appropriate before year-end.
However, the meeting record suggested that officials were not under immediate pressure to raise borrowing costs again at their October gathering.
CME FedWatch data indicated that financial markets were pricing in approximately a 20% probability of an October rate increase.
The probability of another increase by December stood at around 80%.
Expectations of further tightening have supported the US dollar, creating an additional obstacle for gold prices.
A stronger dollar makes internationally traded bullion more expensive for buyers using other currencies, potentially reducing demand.
The combination of elevated bond yields, a firmer dollar and the prospect of another rate increase has limited gold’s ability to benefit from heightened geopolitical uncertainty.
China’s Gold Reserve Purchases Provide Market Support
Despite the pressure from monetary policy expectations, central bank demand has continued to support the precious metal.
Analysts at ANZ highlighted sustained official-sector purchases as an important factor limiting gold’s recent losses.
The People’s Bank of China increased its gold reserves by 740,000 ounces in September, extending its accumulation programme to 23 consecutive months.
The continued expansion of China’s holdings reflects sustained demand from monetary authorities, even as higher interest rates create challenges for other categories of gold investors.
Central bank purchases have helped provide a degree of stability to the market during periods of dollar strength and rising government bond yields.
Nevertheless, gold remains sensitive to changes in expectations for Federal Reserve policy and the potential impact of higher energy prices on inflation.
Investors are likely to continue monitoring developments in the Middle East, US energy production and upcoming economic data for further indications of the direction of interest rates and precious metal prices.
Leave a Reply