Amid tensions between the US and Iran, gold prices have experienced significant volatility. Although Trump announced a temporary delay on attacks against Iran and hinted at a possible agreement between the two countries, gold did not perform as a safe-haven asset as expected. Instead, it underwent dramatic fluctuations with changes in market sentiment.
Severe Fluctuations in the Gold Market
On Monday, spot gold plunged over 5% at one point, hitting $4,262 per ounce before climbing back to around $4,480, though it was still about 2% lower than the previous trading day. Gold futures showed similar weakness, with declines approaching 10% at times. Silver and other precious metals were not spared, experiencing varying degrees of decline.
Market Sentiment Shifts and News-Driven Moves
The primary driver of market volatility stemmed from Trump's announcement of a pause in attacks on Iran and the possibility of an agreement over the Hormuz Strait. Although the market initially reacted positively, Iran quickly denied contacts with the US, leading to a negative shift in market sentiment.
Inflation and Interest Rate Expectations
Analysts indicated that gold's weak performance is closely tied to global inflation expectations and rising interest rates. The increase in oil prices is raising inflation expectations, consequently boosting interest rates and the dollar's movement, putting pressure on gold prices. Meanwhile, there has been a "cash is king" approach in the market as investors turn to more liquid assets.
Gold's "Pro-Cyclical" Nature
Citi analysts noted that gold's recent behavior is more akin to a risk asset than a safe-haven tool, with this "pro-cyclical" nature especially evident in momentum trading over the past months. Historical experience shows that gold often declines in the early stages of economic shocks before entering a medium to long-term upward phase.
