Whalesbook
Conflicting Signals on Peace Talks
Gold bullion traded just below $4,523 an ounce, recovering some losses from earlier in the week. The White House has stated that talks with Tehran are moving forward, even outlining a 15-point peace plan. However, Iran's government has publicly rejected these proposals, stating its own terms for ending the conflict.
US Troop Buildup Fuels Conflict Fears
At the same time, the US has sent thousands more troops to the region. This military buildup is fueling talk of a possible ground invasion, threatening diplomatic efforts. The market is closely monitoring these events, which could significantly affect commodity prices and investor sentiment.
Gold's Decline Amid Inflation Fears
Since the conflict began about a month ago, gold has dropped by nearly 15%. Its movements have largely followed stock markets and gone against oil prices. Rising energy costs have fueled inflation worries, leading to expectations that central banks might keep interest rates the same or raise them. This scenario typically discourages investors from holding assets like gold that don't pay interest.
War Fuels Recession Worries
Potential interest rate hikes by the Federal Reserve might be slowed by recession risks if the regional war drags on. Wall Street analysts are lowering their US economic forecasts for this year, expecting more inflation, higher unemployment, and a greater chance of recession. Standard Chartered Plc analysts, including Sudakshina Unnikrishnan, noted that "investors are likely to remain exposed to risk in the short term."
Gold ETFs See Major Outflows
Gold exchange-traded funds (ETFs) have seen large withdrawals, with about 85 tonnes of holdings sold since the conflict began, according to Bloomberg calculations. The analysts from Standard Chartered further indicated that even at current prices, another 83 tonnes of holdings are losing money, which could lead to further selling. This is about $12 billion in assets based on Wednesday's closing price, putting more pressure on gold.