Gold prices moved slightly lower on Wednesday as investors continued to assess uncertainty surrounding peace negotiations between the United States and Iran, while concerns over rising energy costs and the possibility of additional central bank rate hikes remained in focus.
By 05:51 ET (09:51 GMT), spot gold had declined 0.4% to $4,491.28 per ounce, while gold futures slipped 0.3% to $4,523.20 per ounce.
Al Jazeera reported that indirect talks between Washington and Tehran were still ongoing despite military exchanges earlier this week. The United States said the fragile ceasefire remained intact, while Iran warned that any breach of the truce would trigger retaliation.
U.S. Secretary of State Marco Rubio said earlier this week that it could take a “few days” before Washington and Tehran are able to finalise an agreement.
Media reports over the weekend suggested the two countries were approaching a framework deal that would include an extension of the ceasefire and the reopening of the Strait of Hormuz, the strategically important shipping route along Iran’s southern coast through which roughly one-fifth of global oil supply passes. The waterway has been largely disrupted since the conflict began in late February, contributing to tighter oil supplies and higher crude prices.
Investors remain concerned that elevated oil prices could trigger a new wave of inflation globally. As a result, expectations have increased that central banks, including the Federal Reserve and the European Central Bank, may be forced to maintain higher interest rates or introduce additional hikes to contain price pressures.
That environment could weigh on gold, which typically underperforms when interest rates remain elevated because the metal does not generate yield.
“Prices remain under pressure from elevated inflation expectations linked to higher energy prices, reducing the likelihood of near term rate cuts. While renewed U.S. Iran clashes in the Persian Gulf have added to uncertainty, markets retain some cautious optimism that a deal could still be reached,” analysts at ING said in a note.
Outside the precious metals market, aluminum prices climbed to their highest level in four years on the London Metal Exchange as supply conditions tightened partly because of the Middle East conflict. ING analysts, citing Mysteel, also noted that Chinese authorities are increasing scrutiny of energy consumption and emissions, reinforcing expectations of potential production restrictions in the aluminum sector.