Gold pares early gains as traders weigh Iran war, Fed rate outlook

Gold pared most of its early gains as traders weighed the prospect of less monetary easing due to higher energy prices stemming from the escalating conflict in the Middle East.

Bullion slipped as much as 0.3% before trading about 0.2% higher. Earlier it rose to a one-month high on haven demand. The conflict spread over the weekend after the US and Israel attacked Iran — killing the Islamic Republic’s supreme leader, Ayatollah Ali Khamenei — and Tehran responded with waves of missiles at targets in multiple countries. Silver and palladium fell.

The risk-off mood on Monday sent global stocks lower, and US Treasuries also fell on concerns over inflationary pressure from higher oil prices and rising government spending. Oil surged the most in four years.

Gold’s gains were capped as traders started to factor in higher inflation risks, according to Frank Monkam, head of cross-asset macro strategy and trading at Buffalo Bayou Commodities. That may force the Federal Reserve and its global peers to hike interest rates to contain rising price pressures.

In fact, swap traders have already scaled back wagers on the scope of rate cuts. Higher rates are typically negative for non-yielding bullion.

Still wider geopolitical tensions and US President Donald Trump’s upheaval of international relations and trade have underpinned a long-running rally for gold, which has also been supported by elevated central-bank buying and investor fears of inflation and currency debasement. bloomberg