Gold prices are holding near $4,500 an ounce as traders watch US-Iran negotiations closely. The metal has struggled to break out of a narrow trading range.
Spot gold was at $4,505.93 an ounce in Asian trade on Wednesday. Gold futures edged up 0.1% to $4,539.01 per ounce. By early European trade, futures had slipped back 0.4% to $4,483.80.
The precious metal has been pinned between $4,400 and $4,600 for about ten days. Traders are getting mixed signals from the Middle East conflict and inflation data.
Indirect negotiations between the US and Iran are continuing, according to Al Jazeera. But the two sides are still far apart on issues including Iran’s nuclear activities and control of the Strait of Hormuz.
Earlier this week, US forces struck targets in southern Iran. That pushed prices down on Tuesday before a partial recovery.
The bigger pressure on gold right now is inflation, not the war itself. Recent data showed an energy-driven spike in prices in March and April.
That has led markets to bet that central banks, including the Federal Reserve, may need to raise interest rates. Higher rates are typically bad for gold because they raise the cost of holding the metal.
Markets are now pricing in close to a 40% chance the Fed hikes rates by December, according to CME Fedwatch data.
ANZ analysts said in a note that the prospect of higher inflation has increased the market price on the chance of a rate hike. They added that a sustained rebound in gold would need it to break from its current correlation with risk assets.
Simon-Peter Massabni of XS.com wrote that gold’s safe-haven status is being tested. He said interest rates, the US dollar, and liquidity conditions have become more influential than military or political tensions.
Markets appear to be treating inflation as the bigger short-term threat. The traditional idea that gold rises in a crisis is being questioned.
Gold has largely underperformed since the Iran war began. The metal’s appeal as a safe haven has been overshadowed by rate hike concerns.
Other precious metals also fell on Wednesday. Spot silver dropped 0.3% to $76.79 an ounce. Spot platinum fell 0.9% to $1,948.63 an ounce.
Investors are now watching key US economic data due this week. A revised first-quarter GDP reading is expected Thursday, along with the PCE price index, the Fed’s preferred inflation measure.
Those numbers could shift expectations on interest rates and move gold either way.
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