Gold flat as traders eye slew of central bank decisions for comments on Iran war

Gold prices on Tuesday gave up gains to trade largely flat, as the yellow metal continues to trade in a tight range amid the ongoing U.S.-Israel war on Iran. Market participants were looking ahead to a host of central bank meetings this week for commentary on the conflict.  

Spot gold slipped 0.1% to $4,999.66/oz by 15:38 ET (19:38 GMT), while gold futures were a smidge higher at $5,004.36/oz. Following a brief spike following the start of the Iran war, bullion has largely traded within a range of $5,000/oz to $5,200/oz. 

Gold loses ’flight to safety’ appeal

Bart Melek, managing director and global head of commodity strategy at TD Securities, argued that while gold has retained its traditional status as a safe haven asset, investors are also reacting to uncertainty around the wider interest rate environment.

During times of geopolitical turmoil, the yellow metal is traditionally viewed as bastion, but concerns over the inflationary effects of the conflict in Iran have recently bolstered the U.S. dollar, making gold more expensive for overseas buyers. 

"Gold has lost its ‘flight to safety’ appeal. And it looks unlikely to capitalise on any further chaos as that role appears to have been snapped up by the U.S. dollar. Meanwhile, expectations that interest rates will remain higher for longer have also capped upside potential to some extent," David Morrison, senior market analyst at Trade Nation, said. 

On Tuesday, the Dollar Index - which tracks the greenback a basket of six major peers - weakened slightly, even as oil prices remained elevated after U.S. allies largely rebuffed Washington’s calls for aid in reopening the Strait of Hormuz, a crucial waterway south of Iran through which a fifth of the world’s oil passes. Attacks on crude production sites in the Gulf continued as well, while Israel said it had killed one of Iran’s highest-ranking leaders.

Iran has threatened to attack any vessel carrying goods benefiting the U.S. or its allies attempting to cross the strait, leading many container shipping companies to halt sailings. Prices for oil and gas have surged as a result since start of the joint U.S.-Israeli strikes on Iran in late February, fueling fears over a spike in inflation.

Central banks in focus amid inflationary shock concerns

Faced with the prospect of reignited price growth, some observers have suggested that central banks may begin to push back the timeline for potential interest rate cuts or even once again consider rate hikes. Higher borrowing costs may attract more foreign investment, boosting the appeal of the dollar and weighing on gold.

A raft of major central banks are set to meet this week, most notably the Federal Reserve on Wednesday. The Fed is widely expected to leave interest rates unchanged amid heightened uncertainty over the inflationary impact of the Iran conflict. 

The Bank of Canada will also hold its latest gathering on Wednesday, while the Bank of Japan, Swiss National Bank, the Bank of England and the European Central Bank are set to decide on interest rates on Thursday. 

"As the Fed meets today and tomorrow to decide on interest rates, a key focus across the committee is whether the Middle East war will cause a one-time shock to inflation or a lasting effect. Although a pause is widely expected, surging oil prices are clouding the outlook for future cuts, with Wall Street now expecting a single 25-basis-point (bps) reduction in 2026, down from two or three earlier in the year," José Torres, senior economist at Interactive Brokers, said.

"Meanwhile, some of the Fed’s global counterparts have begun moving in the other direction or are considering hikes amid greater risk stemming from higher energy costs. Indeed, Australia hiked this morning, and the EU and the UK are carefully considering whether they should raise as well," Torres said.