Gold prices climbed to a near two-week high on Wednesday, buoyed by a weakening US dollar and comments from US President Donald Trump suggesting the war with Iran could wind down within two to three weeks. Spot gold rose 0.4% to $4,685.79 per ounce, having earlier touched $4,723.21, its highest level since March 20. US gold futures for April delivery added 0.8% to $4,713.40.
The rally follows a surge on Tuesday where gold on COMEX jumped 1.8% to $4,640.40 per ounce. This recent strength contrasts sharply with gold's performance in March, which saw its steepest monthly decline since October 2008, falling over 13%. The decline was driven by rising energy prices, which fueled inflation concerns and led markets to price out anticipated Federal Reserve interest rate cuts.
"Talks that the US might wrap up the war in two to three weeks, even if the Strait (of Hormuz) is not reopened, reinvigorated the US equity markets and pulled gold higher along with it," said Marex analyst Edward Meir. The prospect of de-escalation in the Middle East lifted broader equity and bond markets, improving risk sentiment.
However, analysts caution that gold's upside may be limited. "The upside is being limited due to the fact that interest rates can move higher if inflationary expectations reignite," Meir noted. Traders have almost completely priced out any chance of a Fed rate cut this year, a shift from expectations of about two cuts before the Iran war began on February 28.
The conflict's impact on commodities has been significant. Brent crude oil is on course for its steepest monthly gain ever, with front-month futures poised for an unprecedented 58% increase in March. Similarly, West Texas Intermediate (WTI) is seeing its largest jump since May 2020, up 54%. Oil prices eased slightly on Tuesday on Trump's comments but remain elevated due to supply concerns linked to the closure of the Strait of Hormuz.
Aluminium prices have also surged, set for their largest monthly gain in nearly two years. The war has disrupted supply lines and damaged production facilities in the Persian Gulf region, which accounts for about 10% of global aluminium output. "Since shutting down and restarting production involves lengthy processes, an interruption in production could mean that output remains limited even after the Strait of Hormuz is reopened," said Commerzbank analyst Volkmar Baur.
Investors are now focused on President Trump's scheduled address for further signals on the conflict's trajectory and potential implications for monetary policy. "Should geopolitical tensions de-escalate further, then expectations for Fed easing could return. In such a scenario, real yields can ease, providing support for gold," said OCBC strategist Christopher Wong.
