Gold Edges Lower in Asia Even After Middle East Conflict Worsens

Gold edged lower, reversing an earlier advance, as the world waited for Iran’s response after the US joined Israel in attacking the Islamic Republic over the weekend, Bloomberg reported.

Bullion traded near $3,355 an ounce after being up as much as 0.8% earlier. The US’s assault on Iran’s three main nuclear facilities buoyed the dollar.

The hostilities in the Middle East have given fresh impetus to a rally that’s pushed gold up almost 30% so far this year. While the chances of an expanding conflict are, theoretically, supportive for bullion, a sustained rise in energy prices would spur inflation and make Federal Reserve rate cuts less likely, a negative for the metal that doesn’t offer any interest.

“The markets still not convinced that the US attack on Iran will ultimately lead to a significant rise in geopolitical tensions,” said Daniel Hynes, a senior strategist at ANZ Banking Group Ltd. “That’s why we haven’t seen investors flock to haven assets. Any haven demand could be offset by investors’ concerns that any rise in oil prices could potentially leave the Fed holding rates high amid inflationary concerns.”

Tehran, so far, hasn’t launched any major retaliatory attacks, and is likely to receive only rhetorical support from Russia and China, while militia groups it’s armed and funded for years are refusing or unable to enter the fray. Iran may also not want to antagonize Beijing by taking any action that would lead to a major surge in oil prices. That, together with the fact that bullion is only about $145 an ounce off its record high reached in April, may be restraining gains at this point.

Spot gold fell 0.4% to $3,355.23 an ounce as of 2:32 p.m. in Singapore. The Bloomberg Dollar Spot Index added 0.3%. Silver and platinum were steady, while palladium advanced.

“The dual forces of uncertainty and accommodative monetary policy are likely to keep gold prices near record highs in the near term,” said Bas Kooijman, chief executive officer of DHF Capital SA.