Military tensions in the Middle East are escalating again, but gold, the classic safe-haven asset, is falling instead. Analysts say surging oil prices have reignited inflation concerns, driving up global government bond yields, while a stronger dollar is adding downward pressure on gold.
Domestic gold (99.99_1kg) closed at 190,810 won per gram on the 2nd, down 2.79% from the previous session, according to the Korea Exchange on the 3rd. That is the lowest level in about a month, since it recorded 190,800 won on the 5th of last month. Compared with the 208,300 won reached on the 25th of last month, the price has fallen more than 8% in little over a week.
Gold had been on an upward trend through last month. U.S. consumer prices rose 0.1% in July from the previous month and producer prices were flat, raising expectations that inflation was stabilizing. As concerns about a Federal Reserve rate hike eased, the relative investment appeal of gold, which pays no interest, increased.
The mood reversed when armed conflict between the United States and Iran resumed. After additional U.S. airstrikes drew Iranian retaliation with ballistic missiles and drones, oil prices jumped around 5%. West Texas Intermediate crude for October delivery topped $90 a barrel. On concerns that higher oil prices could push inflation back up, the U.S. 10-year Treasury yield rose above 4.8% in Asian trading the previous day, and Japan's 10-year yield climbed past 3%.
Tightening concerns are also resurfacing. "The surge in oil prices has once again stoked inflation concerns and put upward pressure on government bond yields in major economies," said Lee Kyung-min, an analyst at Daishin Securities. "Based on the CME FedWatch tool, the probability of a rate hike at the September Federal Open Market Committee meeting has risen to 68%."
With yields rising and the dollar strengthening as well, gold faces a double burden. The dollar index, which measures the greenback against six major currencies, stood at 99.724 as of 3:30 p.m. the previous day, approaching the 100 mark. "As the armed conflict between the United States and Iran intensified, oil prices, the dollar index and U.S. Treasury yields all rose together, sending precious metal prices down across the board," said Ok Ji-hee, an analyst at Samsung Futures.
