Gold price fades on inflation concerns, silver price rebounds

Gold drifted lower on Monday as a stronger US dollar and concerns over higher interest rates kept investors away from the metal.

Spot gold fell as much as 3% to around $5,015 an ounce, before recovering most of its losses. US gold futures slumped and remain down 1% on the day. Meanwhile, silver rose by over 2% to trade above $85 an ounce.

Bullion has come under pressure in recent sessions, as the war in the Middle East stoked fears of inflation rising in the US, which increases the likelihood of the Federal Reserve keeping interest rates elevated. The prospect of high rates, coupled with a surging US dollar, has kept gold investors on the sidelines, despite the metal’s traditional role as a safe haven during times of geopolitical uncertainty.

“In periods of geopolitically driven market stress, investors sometimes sell assets such as gold to raise cash,” explained Christopher Wong, a strategist at Oversea-Chinese Banking Corp., in a Bloomberg note. “Once that phase passes, geopolitical uncertainty typically continues to underpin demand for safe havens on dips.”

‘Time to wait’

While trading has been choppy and upward momentum has stalled, gold has still gained around 18% so far this year. US President Donald Trump’s upheaval of global trade and order, as well as threats to the Fed’s independence, has largely supported assets perceived as havens.

Elevated central-bank buying has also helped growth, and the People’s Bank of China bought more gold in February, extending its purchasing streak to 16 months.

In the near term, investors continue to monitor the Middle East war, which now enters its 10th day. The fighting has caused crude and natural gas prices to skyrocket, feeding the resurgence of the US dollar and inflationary pressure.

“A relatively swift end to the conflict would likely see the dollar weaken and gold rally, while a prolonged war would see the US currency and Treasury yields rise in anticipation of higher inflation and interest rates,” Ed Meir, an analyst at Marex, said in a note on March 7.

“There is a time to buy, a time to sell and a time to simply wait,” he said. “The latter is the preferred course of action for the moment.”

(With files from Bloomberg)