Middle East tension shakes gold prices: Weekly loss exceeds 10 percent

Following reports that the US is preparing to deploy thousands of marines and sailors to the Middle East, expectations that energy prices will climb and create new pressure on global inflation have resonated widely. This growing expectation has strengthened the forecast that interest rates will remain high.

The gold market faced significant selling pressure due to these developments. On a weekly basis, the ounce price of gold fell by 10.4 percent, dropping below 4,500 dollars. The value of gram gold, which is calculated based on the ounce price of gold and the dollar/TL exchange rate, also retreated to 6,406 liras, a decline of 10.2 percent.

The strengthening of the dollar against other currencies also reduced demand for gold. As gold has become more expensive for investors, its appeal has diminished, especially for those trading in other currencies.

INFLATION AND INTEREST RATE EXPECTATIONS HAVE RISEN

The rise in regional tension following the attacks by the US and Israel on Iran on February 28 has increased uncertainties in the global economy. The possibility that Iran could close the Strait of Hormuz for an extended period has emerged as a risk factor that could lead to rising energy costs and climbing global inflation.

Following these developments, expectations regarding an upward trend in inflation have come to the fore in the markets. The view that central banks will keep interest rates high for a long time has begun to prevail.

INTEREST RATE PRESSURE ON GOLD CONTINUES

While gold is traditionally seen as a safe haven against inflation, rising interest rates overshadow the appeal of this non-yielding asset. Global financial circles are assessing that the European Central Bank and the Bank of England may begin interest rate hikes in April. The US Federal Reserve, meanwhile, kept interest rates unchanged at its last meeting while announcing that it had raised its inflation expectations. Fed Chair Jerome Powell drew attention to the great uncertainty created by the war environment in monetary policy.

News Source: 12punto