Gold prices posted some gains on Tuesday, as investors balanced safe-haven demand driven by escalating geopolitical tensions in the Middle East with shifting expectations around global monetary policy.
Spot gold rose 0.3 per cent to $5,018.44 per ounce, while U.S. gold futures climbed 0.5 per cent to $5,024.61 per ounce. Despite an initial increase following the outbreak of the U.S.-Israel war involving Iran, bullion has since traded within a relatively narrow band between $5,000 and $5,200 per ounce, reflecting a market caught between competing macroeconomic forces.
Market participants are increasingly focused on the implications of the conflict, particularly its impact on global energy prices and inflation trajectories. Oil prices have remained elevated amid sustained disruptions in the Gulf region, especially around the Strait of Hormuz. The continued instability has heightened concerns about supply shocks, with attacks on production infrastructure and shipping threats exacerbating volatility.
Traditionally, gold benefits during periods of geopolitical uncertainty, serving as a hedge against risk. However, the current environment has introduced additional complexity. According to Bart Melek, managing director and global head of commodity strategy at TD Securities, while gold continues to attract safe-haven flows, investor behavior is also being shaped by uncertainty surrounding interest rates.
Rising oil and gas prices are fueling fears of renewed inflationary pressure globally. This, in turn, has strengthened the U.S. dollar in recent weeks, making gold more expensive for holders of other currencies and limiting its upside momentum. The interplay between inflation expectations and currency strength has created a delicate equilibrium for bullion markets.
Analysts at ING noted that early-week trading saw a slight softening in the dollar, supported by tentative optimism over potential diplomatic or logistical solutions to reopen the Strait of Hormuz. However, such optimism remains fragile. Efforts by the United States to rally allies into securing the waterway have so far met resistance, underscoring the geopolitical complexity of the situation.
Meanwhile, Iran has escalated its rhetoric, warning it may target vessels linked to U.S. or allied interests attempting to transit the strait. This has already prompted several major shipping companies to suspend operations in the region, tightening supply chains and pushing energy prices higher. The knock-on effect has been a resurgence of inflation concerns, particularly in energy-importing economies.
Against this backdrop, attention is firmly on central banks, many of which are convening this week to assess policy direction. The U.S. Federal Reserve’s meeting on Wednesday is the most closely watched. While the consensus expectation is that rates will remain unchanged, policymakers face mounting pressure to address the inflationary risks stemming from the conflict.
The prospect of prolonged or renewed inflation has led some analysts to suggest that anticipated interest rate cuts could be delayed, or in a more hawkish scenario, reversed. Higher interest rates typically bolster the dollar by attracting foreign capital, which can, in turn, dampen demand for non-yielding assets like gold.
In addition to the Fed, a series of key central bank decisions are due. The Bank of Canada is also scheduled to announce its policy stance on Wednesday, while Thursday will see rate decisions from the Bank of Japan, Swiss National Bank, Bank of England, and the European Central Bank.
