Gold loses its shimmer in Asia over rising oil prices, hawkish Fed stance

Asia’s gold rush is starting to lose some of its lustre, as surging oil prices due to the Iran war dampen rate-cut hopes that recently helped fuel one of the metal’s strongest rallies in years.A surge in energy costs has revived inflation concerns and made central banks less likely to cut rates, and this has made interest-bearing assets more attractive, according to analysts.Gold prices fell by 12 per cent from US$5,247.90 per troy ounce on February 27 to US$4,620 on Friday morning.The metal is typically seen as an attractive long-term investment and a safe-haven asset in times of economic and geopolitical uncertainties.On January 28, gold prices reached an all-time high at US$$5,602. It rose 65 per cent from US$2,624 on January 2 last year to US$4,339.65 on December 31, according to KITCO, a precious metals information provider.Oil prices remained elevated, with Brent crude futures for July rising by almost one per cent to US$111.41 per barrel on Friday. The benchmark has risen for four straight months, with its June contract that expired on Thursday surging to US$126.41 a barrel, the highest since March 2022.Smoke rises in the Fujairah oil industry zone, UAE, amid the Iran war. Oil prices have surged since the start of the conflict. Photo: ReutersOn Wednesday, the US Federal Reserve kept interest rates on hold but raised concerns about inflation. The following day, the Bank of England maintained its rates and set out scenarios for the economic impact of the Iran war, one of which was a potential “forceful” increase in borrowing costs.“I don’t think gold prices will fall much further, but the current scenario with the energy prices isn’t helping at all,” said Gnanasekar Thiagarajan, India-based founder of Commtrendz Research, highlighting that higher inflationary expectations might force central banks to increase interest rates.“Only when interest rates come down, gold prices rise.”Investors in Asia tend to flock to the metal when anticipating higher prices, and only a few deep-pocketed buyers would consider acquiring it during a downtrend, he said.Further ReadingThe cautious sentiment was evident even during the Indian festival of Akshaya Tritiya on April 19, even though it was traditionally considered one of the biggest buying occasions for the metal, Thiagarajan added.Asia accounted for about 70 per cent of global gold sales last year, with India and China among the biggest buyers, according to the World Gold Council.Total gold demand around the world rose by two per cent to 1,231 tonnes in the first quarter from the same period a year earlier, the council said in a report released on Wednesday. As a result of high gold prices, the value of purchases jumped by 74 per cent to a record US$193 billion over the same period.01:46Rising diesel prices push Filipino farmers to financial breaking point