Why is gold breaking even in the midst of war? Biggest fall in Gold in 6 weeks, know the picture of the market has changed?

Business Desk – Whenever war or geopolitical tension increases in the world, investors turn to gold as a safe haven. But this time, despite the increasing military tension between America and Iran, there is pressure on gold prices. The reason for this is not the war, but the increased concern about rising inflation and interest rates due to the war. For this reason, gold is moving towards its biggest weekly decline in six weeks this week.

Biggest weekly decline in 6 weeks

On Friday, spot gold remained almost stable in the international market and was trading at $ 3,970.35 an ounce. This is the lowest level since July 1. The price of gold has fallen by more than 3% in the entire week. At the same time, American gold futures for August delivery fell 0.5% to $ 3,973.10 an ounce.

Gold has fallen by about 25% since the end of February

According to market data, gold prices have fallen by about 25% since the US-backed Iran war started in late February. Experts believe that increased inflation due to the war may force central banks to keep interest rates high for a long time, thereby increasing pressure on gold.

Oil boom changed the market mathematics

The US attacked bridges and an airport in Iran, in response to which Iran targeted US military bases in the Middle East. After these incidents, the price of Brent crude increased by more than 14% this week.

Due to oil becoming expensive, the fear of rising inflation has strengthened. If inflation increases, other central banks of the world, including the US Federal Reserve, can keep interest rates at high levels for a long time. This has a direct impact on gold prices.

Why are high interest rates harmful for gold?

Gold is an investment on which no interest is earned. In such a situation, when interest rates rise or they are likely to remain high for a long time, investors turn to government bonds and other interest bearing investment options for better returns. Due to this the demand for gold weakens.

Forex.com market analyst Fawad Razaqzada says that during the recent decline, some investors have also booked profits. According to him, if oil prices rise further, expectations of inflation and interest rates will also increase, due to which there may be pressure on gold.

Strong dollar also increased the difficulty

This week the US dollar strengthened for the second consecutive trading session. Due to strengthening of dollar, gold becomes expensive for investors of other countries, which affects its demand. Chris Gaffney, Head of World Markets at Everbank, says that there are two major reasons behind the recent selloff in gold – the strong US dollar and growing concerns about global inflation. Due to both these reasons, there is pressure to increase global interest rates.

Now the market’s eyes are fixed on the Fed’s decision

Recent economic data has reduced the chances of increasing interest rates in the next FOMC meeting. Despite this, the market believes that the rise in oil prices may force the Federal Reserve to adopt an even stricter stance.

According to the CME Fedwatch tool, there is a 53.3% chance that the US Fed will raise interest rates in September. At the same time, Fed Vice Chairman Philip Jefferson has also indicated that if inflation does not improve soon, interest rates may be increased.

Gold may shine again in the long run

Although gold prices remain under pressure at present, Goldman Sachs believes that if geopolitical tensions increase further, private investors may turn to gold again. At present the share of gold in private investment portfolio is relatively low, hence there is a possibility of increasing investment in it in future for portfolio diversification.

Other precious metals are also in bad condition

Weakness was also seen in other precious metals this week. Spot silver fell 0.8% to $55.05 an ounce, platinum fell 3.3% to $1,563.49 an ounce and palladium slipped 1.5% to $1,230.42 an ounce. All three metals are also moving towards registering a decline on a weekly basis.