Gold wavers amid market uncertainty

Bullion traded either side of $5,000 an ounce, dropping as much as 1% before paring losses

Gold wavered, as the war in West Asia entered a third week and investors weighed a softer dollar against continued threats to global oil supplies.

Bullion traded either side of $5,000 an ounce, dropping as much as 1% before paring losses. The metal steadied after declining for a second straight week, under pressure from rising energy prices and inflationary concerns arising from the US-Israeli war with Iran. Crude erased early gains on Monday and a gauge of the dollar slid, helping to support commodities priced in the US currency.

Uncertainty over how long the war will last makes it difficult to assess the impacts on markets and the wider economy.

Over the weekend, the US tried to attack Iran’s main oil-export hub and Iran continued strikes on energy infrastructure in various countries around the Persian Gulf. Traffic remained near a standstill through the Strait of Hormuz, the strategic shipping thoroughfare through which a fifth of the world’s oil and liquefied natural gas typically moves.

Gold’s short-term moves are “mechanical” as the metal responds to the dollar and rate-cut prospects, said Kyle Rodda, a Melbourne-based analyst at Capital.com. However, the war may support bullion in the long run, as the conflict erodes trust in the US amongst adversaries and increasingly allies, he said.

Though upward momentum has stalled since the war began, the metal has still gained around 16% so far this year. Concerns over stagflation — a combination of slower growth and high inflation — may also prompt investors to turn to gold as a better store of value over the longer term. But any positive effects may be limited if central banks hike rates aggressively to tame inflation, Rodda said.