Gold experienced intense volatility at the beginning of the week as markets reacted to headlines surrounding the crisis in the Middle East. The precious metal came under heavy selling pressure early Monday, with Oil prices shooting higher and feeding into global inflation fears, after US President Donald Trump’s threat over the weekend to “obliterate” Iran’s power plants if they refused to open the Strait of Hormuz within 48 hours. In response, Iran warned that it would retaliate and target all US-linked energy infrastructure in the Middle East.
After falling to its lowest level since late November near $4,100, XAU/USD made a sharp U-turn in the second half of Monday and erased a majority of its daily losses to close near $4,400. US President Trump announced that they postponed any military strikes against Iran's power plants for five days following "good and productive conversations," triggering a sharp decline in Oil prices and a heavy US Dollar (USD) selloff.
Heightened optimism about a de-escalation of the conflict allowed risk flows to return to markets and helped Gold extend its recovery. Israeli Channel 12 claimed on Tuesday that a one-month ceasefire could be announced, during which sides would negotiate the terms of a 15-point proposal sent to Iran through intermediaries.
Nevertheless, the market mood soured in the second half of the week as the Iranian side continuously refuted any claims that they were in negotiations with the US. Iran also reportedly rejected the US’s 15-point proposal. Meanwhile, White House Press Secretary Karoline Leavitt refused to say whether the US was considering a ground operation during a press briefing late Wednesday but noted that a formal authorization from Congress would not be needed if the US decided to execute such a plan. After climbing above $4,600 early Wednesday, Gold retraced its daily rally in American trading hours and came under renewed bearish pressure on Thursday.
In a post published on Truth Social on Thursday, Trump said that Iran was "begging" them to make a deal. Later in the day, the President announced that, as per the Iranian government's request, they will postpone the plan to attack Iran's energy infrastructure for another 10 days to April 6 and reiterated that talks between Washington and Tehran were going "very well." Investors largely ignored this development and Gold fell nearly 3% on the day.
In the meantime, rising US Treasury bond yields further weighed on Gold in the second half of the week. Federal Reserve (Fed) Governor Michael Barr said on Thursday that a price shock caused by the Middle East conflict could shift inflation expectations and lead to more inflation persistence. Similarly, Fed Vice Chair of Supervision Philip Jefferson noted that geopolitical tensions posed upside risks to inflation forecasts. The benchmark 10-year US T-bond yield rose nearly 2% on Thursday and advanced to its highest level since July, above 4.45% on Friday.
Heading into the weekend, Gold corrected higher, supported possibly by short-covering.
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