By BasKooijman, CEO and Asset Manager of DHF Capital S.A
Gold extended its recovery on Wednesday, moving further above the USD 4,500 mark as U.S. Treasury yields retreated amid easing concerns over inflation following the recent decline in oil prices. Sentiment shifted after the U.S. president announced that talks with Iran were underway, raising expectations for a potential end to the war and the reopening of the Strait of Hormuz, which could allow oil exports to return to normal levels.
At the same time, gold could continue to find support from its safe-haven appeal and persistent central bank demand. Ongoing tensions in Eastern Europe could sustain allocations into the metal. In parallel, continued purchases by central banks remain a structural pillar for the gold market. Gold ETFs recorded notable outflows in the weeks following the escalation of the war, but a resolution to the tensions in the Middle East could trigger a reversal, leading to a return of inflows.
However, gold could continue to face risks if Treasury yields rebound and oil prices surge again, particularly in the event of a breakdown in the reported negotiations between the United States and Iran. As such, the metal is likely to remain highly sensitive to diplomatic headlines and geopolitical developments in the Middle East and their impact on monetary policy expectations.
Further progress in diplomacy and continued moderation in energy prices could reduce inflation concerns enough to support a softer interest-rate outlook, creating room for gold to extend its gains. Conversely, any setback in negotiations and more hawkish expectations could quickly restore upward pressure on yields and limit the upside for the metal.
