Investors closely tracked a series of Middle East war developments to gauge how rising energy costs might affect inflation, while gold remained stable.
As of 8:11 a.m. in Singapore, spot gold saw minimal movement, trading at $4,008.83 an ounce. Silver dipped 0.2%, valued at $56.31 per ounce.
The surge in gold prices reflects a broader flight to safety as geopolitical risks intensify. Past conflicts in the region have historically driven gold higher, and the current crisis - involving direct US-Iran hostilities and threats to key shipping lanes - has added fresh momentum to the rally. With inflation already elevated, further supply disruptions could push prices even higher.
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The current level near $4,000 marks a milestone for the metal, reflecting the compounding effect of ongoing military strikes and threats to key shipping lanes. Historically, similar escalations in the region have triggered sustained rallies, and with no immediate ceasefire in sight, analysts see further upside risk.
The ongoing five-month conflict continues to push up prices for raw materials essential to industry and agriculture. The Houthi threat to blockade Saudi Arabia could further strain oil flows through the Bab el-Mandeb strait, a critical chokepoint. Meanwhile, the US strikes on Iranian positions risk a wider regional war, with Iran a major oil producer. These factors have kept gold supported as a hedge against geopolitical risk, even as higher interest rates typically weigh on the metal.
The Bloomberg Dollar Spot Index, which measures the greenback's performance, remained unchanged.
American military conducted new strikes on Iranian positions, and President Donald Trump threatened that Tehran would "pay" for the recent killings of three US service members. According to Reuters, a ten-day halt to hostilities has been proposed.
Market participants now face the challenge of balancing elevated energy costs and potential Federal Reserve rate increases against tepid US economic figures. Higher interest rates act as a disadvantage for gold, which offers no yield.
The Federal Reserve will unveil its interest rate decision during a meeting scheduled for next week. Swap traders see a low chance of a rate increase at the Fed's next meeting, though they are fully expecting at least one rate rise before December. "Hawkish Fed is the biggest factor now," said Alexandra Symeonidi, an analyst employed by William Blair International Ltd. She added, "Gold traders are unlikely to do much before then." A proposed ten-day halt to hostilities, reported by Reuters, could offer a temporary de-escalation but remains uncertain as both sides continue military operations.
This surge in commodity prices and the risk of prolonged instability could force the Federal Reserve to maintain a hawkish stance. For gold, which yields no interest, higher rates are a negative factor, but its status as a safe haven may buffer against downside risk. Traders will now focus on the Fed's policy statement next week for signs of how the central bank views the interplay between geopolitical turmoil and domestic economic data.
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