This article first appeared on GuruFocus.
Gold (GLD) climbed to its highest level in a week as investors bought the recent dip while monitoring the Middle East conflict and its possible impact on energy prices and inflation. Bullion gained as much as 1.8% to move above $4,080 an ounce after ending the previous session 0.2% lower. The rebound came even as oil edged down following two days of gains, despite fresh U.S. strikes on Iranian targets and President Donald Trump’s warning that Tehran would pay for the deaths of three U.S. soldiers. Investors may view the move as a sign that geopolitical uncertainty is restoring some demand for gold after recent pressure from expectations of higher interest rates.
The conflict widened after Yemen’s Iran-backed Houthi rebels said they would impose a maritime blockade on Saudi Arabia, prompting the Saudi-led military coalition to take measures to protect vessels in the Red Sea. At the same time, Iran said mediators had presented proposals aimed at easing hostilities after more than a week of worsening clashes, while Reuters reported a proposal for a 10-day pause in strikes between Iran and the U.S. The conflict, now in its fifth month, has contributed to higher prices for commodities used in manufacturing and food production. Traders are therefore weighing the inflationary impact of elevated energy costs against softer U.S. economic data and the possibility that the Federal Reserve could raise interest rates.
Gold has also shown support around the psychologically important $4,000-an-ounce level, where dip-buying appeared during the latest decline and in the previous week. Christopher Wong, an analyst at Oversea-Chinese Banking Corp., said further gains may remain limited unless oil prices retreat and expectations for Federal Reserve tightening ease. He added that daily momentum indicators were not pointing strongly in either direction, although the pace of gold’s decline could moderate if broader economic conditions do not deteriorate further. Spot gold was 1.8% higher at $4,078.44 an ounce as of 3 p.m. in Singapore, while silver rose 4.3% to $58.86 and platinum and palladium also advanced as the Bloomberg Dollar Spot Index slipped 0.1%.