Gold edges higher as USD rally pauses, US-Iran conflict supports demand
LONDON (March 4) Gold (XAU/USD) edges higher on Wednesday, recovering part of the previous day’s sharp decline as the US Dollar (USD) takes a breather after two days of solid gains. Meanwhile, ongoing geopolitical tensions surrounding the US-Iran war keep safe-haven demand in play, helping cushion the downside.
At the time of writing, XAU/USD trades around $5,180, up about 1.65% on the day.
Gold steadies as USD rally pauses amid Middle East tensions
Gold tumbled 4.4% on Tuesday, while Silver (XAG/USD) slid about 8.4%, as a stronger USD weighed on metals. The decline accelerated after prices slipped below key technical support levels, triggering stop-loss orders and broad liquidation. The sell-off, however, proved short-lived as rising global and economic uncertainty kept investors’ risk appetite subdued.
The Middle East conflict enters its fifth day, with the US and Israel stepping up air and missile strikes across Iran. Tehran has responded with missile and drone attacks on US bases and allied facilities in the Gulf.
As the war escalates, disruptions to Oil flows through the Strait of Hormuz are pushing energy prices higher, raising concerns about the inflationary impact on the global economy.
US President Donald Trump tried to calm markets, saying the US “will begin escorting tankers through the Strait of Hormuz as soon as possible” if necessary. In a post on Truth Social on Tuesday, he added that Washington would provide political risk insurance for ships traveling through the Gulf to “ensure the FREE FLOW of ENERGY to the WORLD.”
Fed rate-cut bets slip below 50 basis points by year-end
Growing inflation concerns are also prompting traders to reassess the Federal Reserve’s (Fed) monetary policy outlook. Markets now price in at least 50 basis points (bps) of interest rate cuts by December, according to the CME FedWatch tool, which could act as a headwind for non-yielding assets such as Gold.
Looking ahead, attention turns to key US economic data due this week. The ADP Employment Change report and ISM Services Purchasing Managers' Index (PMI) are scheduled for release on Wednesday, followed by the Nonfarm Payrolls (NFP) report on Friday.
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