Gold prices have been under pressure since the US-Israel war on Iran began on February 28 and may continue to remain low for some time even after the war subsides in the Middle East.
Gold has been under pressure since the United States and Israel attacked Iran. Prices have fallen from an all-time high of $5,303 per troy ounce on January 28 to $4,235 on Friday. This is because soaring inflation has raised concerns that central banks will not reduce interest rates and may even hike them to rein in prices.
The roots of this inflation are directly linked to the Strait of Hormuz. To retaliate against the US and Israel, Iran has been blocking traffic through the critical waterway since the start of the war, hindering global oil and energy supplies.
Energy prices have gone up in response, which in turn has pushed up inflation. According to US inflation data, the country is witnessing the highest inflation in three years at 4.2 per cent.
At the same time, the country’s job market has held steady, dashing expectations of any further immediate cuts to interest rates.
While gold acts as an inflation hedge for investors, higher interest rates tend to weigh on the metal. Gold, after all, is considered a “non-yielding” asset, as it does not generate income beyond its own worth. In other words, to profit from gold, the metal’s value has to increase.
“Gold is close to real money and is the best asset,” said Justin Cardwell, head options analyst for the financial website OptionSpreaders.com.
"It doesn’t collect dividends, but it also doesn’t yield value until prices go up. People buy gold for its appreciation [in value].”
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