Gold prices remained steady as traders watched the Middle East conflict for signs of the impact of energy prices on inflation.
Gold Moves in Narrow Range
Gold continued to trade in a narrow range around $4,000 an ounce, after closing 0.2 percent lower in the previous session. Oil prices were little changed after two straight days of gains, even as US forces launched a fresh wave of strikes on Iranian targets and President Donald Trump vowed Tehran would “pay” for the recent deaths of three US soldiers.
Houthis Join the Fight, Iran Signals Talks
The Iranian-backed Houthi rebels in Yemen also weighed in, vowing to impose a maritime blockade on Saudi Arabia. The development prompted the government-led military coalition to take steps to protect ships sailing in the Red Sea.
Despite the escalation, Iran insisted that mediators were in touch with proposals to ease hostilities after more than a week of escalating fighting. Reuters reported that a 10-day ceasefire is under discussion.
Fed to Drive Gold’s Direction
The conflict, now in its fifth month, has once again pushed up prices for commodities used in manufacturing and food production. Traders are weighing higher energy prices and a potential Federal Reserve (Fed) interest rate hike amid weak US economic data.
The Fed is due to announce its interest rate decision at its meeting next week. Our analysts say gold traders are unlikely to make much of a move ahead of the decision, as the Fed’s hawkish stance is now the dominant factor influencing the market.
The swaps market is currently pricing in a low probability of a rate hike at the meeting, but has fully expected at least one hike by year-end.
Other Precious Metals Mixed
Spot gold was steady at USD4,023.83 an ounce by 8:55 am Malaysian time. Silver fell 0.2 percent to USD56.31 an ounce, while platinum and palladium remained steady. The Spot Dollar Index also showed no significant movement.
Impact on the Market
Continued uncertainty over the direction of the Middle East conflict and the Fed's stance could keep the regional forex market risk-off, with the Ringgit also affected if energy prices continue to surge due to additional disruptions in the Red Sea or the Strait of Hormuz.
Should the Fed confirm its hawkish stance on inflation at its meeting next week, the US Dollar could potentially gain additional support, which could indirectly add to pressure on regional currencies including the Ringgit.
Key Takeaways
Gold remained steady around USD4,000 an ounce as traders monitored developments in the Middle East conflict for inflation cues.
Houthis threatened a maritime blockade on Saudi Arabia, while Iran signaled talks were underway for a 10-day ceasefire.
The Fed is due to announce its interest rate decision next week, with its hawkish stance now the main factor in the market.
The swaps market is expecting a low probability of a rate hike next week, but fully priced in at least one hike by year-end.
The uncertainty of the conflict and Fed policy could potentially keep the Ringgit under pressure in the near term.
As long as the Middle East conflict remains uncertain and the Fed decision is yet to be announced, the gold market is expected to continue to move in a narrow range until there is further clarity from both developments.
