Stories
Gold's Luster Fades: Down 20% Amidst US-Iran Tensions, What's Next for Bullion?
- •Gold prices have fallen 20% this year, contrary to typical safe-haven behavior during global crises like the US-Iran conflict.
- •International spot gold closed down 0.9% at $4,140 per ounce on Friday, with futures falling 1% to $4,162 per ounce, marking a 3.4% weekly decline.
- •The decline is driven by fears that the US-Iran conflict will cause inflation, prompting central banks, including the Federal Reserve, to raise interest rates.
- •Global markets are focused on the Federal Reserve's meeting; earlier expectations of an interest rate hike have softened due to easing US inflation.
- •If the Fed pauses interest rates, it could provide significant support for gold; the probability of a rate hike in October has dropped from 70% to 22%.
Key Questions Answered
Despite the conflict, global financial markets feared that the tensions would drive up crude oil and commodity prices, fueling inflation and forcing the US Federal Reserve to raise interest rates. Because high interest rates reduce the appeal of non-yielding bullion, gold prices faced persistent downward pressure.
As US inflation eased slightly, market expectations shifted away from an interest rate hike at the upcoming October 28 meeting, dropping the probability of a hike from roughly 70 percent down to 22 percent. If the Federal Reserve decides to pause rates, it is expected to provide significant support for gold prices.
On Friday, October 2, the Indian bullion market and MCX were closed due to Gandhi Jayanti, meaning the 1 percent decline seen in international markets on that day was not directly registered locally. Indian markets are set to reopen on Monday, October 5, when the initial impact of international weakness is expected to reflect on the MCX.
