On Tuesday, March 18, gold prices relinquished earlier gains, trading largely flat in a volatile session. Against the backdrop of the ongoing US-Israel war against Iran, the precious metal maintained a narrow trading range, with OEXN highlighting the dual impact of geopolitical tensions and central bank policies on the gold market. OEXN analysts suggest the current stalemate in gold prices stems from a balance between safe-haven demand and interest rate expectations. Policy decisions from multiple central banks this week, alongside statements concerning the Iran conflict, are viewed as critical variables that could break the current deadlock.
The traditional safe-haven appeal of gold is diminishing, a trend noted by OEXN. While gold retains its classic status as a safe-haven asset, current market sentiment is significantly influenced by uncertainty in the interest rate environment. Safe-haven demand driven by geopolitical unrest is being offset by a stronger US dollar, which is being fueled by inflation concerns. Bart Melek, Global Head of Commodity Strategy and Managing Director at TD Securities, indicated that gold typically serves as a safe harbor during geopolitical turmoil. However, inflation fears stemming from the Iran conflict have boosted the dollar, increasing the cost of gold for overseas buyers and thereby reducing its attractiveness. David Morrison, Senior Market Analyst at Trade Nation, also noted that gold has lost its "safe-haven" advantage, with the US dollar taking its place as the preferred refuge. Furthermore, expectations that interest rates will remain higher for longer are also capping gold's upside potential.
Tuesday's market session was characterized by mixed signals. The US dollar index weakened slightly, but oil prices remained elevated, intensifying market concerns about inflation. The widespread refusal of US allies to assist in reopening the Strait of Hormuz, a passage for one-fifth of the world's oil, continues to support oil prices due to shipping uncertainties. Concurrently, attacks on crude production facilities in the Gulf region persist, and the killing of a senior Iranian leader by Israel has further escalated regional tensions. Iran has explicitly threatened to attack any vessel attempting to transit the strait while carrying goods beneficial to the US and its allies, leading several container shipping lines to suspend voyages. Since the US-Israel joint strikes against Iran in late February, oil and natural gas prices have surged consistently, amplifying upward pressure on inflation.
The persistent inflationary shock has placed global central bank policy moves at the forefront of market attention. OEXN analysis suggests that in the face of resurgent inflation prospects, central banks may adjust their monetary policy pace, potentially delaying rate cuts or even considering hikes. Higher borrowing costs tend to attract foreign investment, strengthening the US dollar and subsequently putting downward pressure on gold prices. This dynamic is a key reason gold is struggling to break out of its current trading range.
Several major central banks are scheduled for policy meetings this week, with the US Federal Reserve's decision on Wednesday being the most closely watched. Given the high uncertainty surrounding the inflationary impact of the Iran conflict, the market widely expects the Fed to hold rates steady and avoid abrupt policy shifts. Besides the Fed, the Bank of Canada will also meet on Wednesday, while the Bank of Japan, Swiss National Bank, Bank of England, and European Central Bank will announce their rate decisions on Thursday. The policy stance of these institutions will collectively shape the global interest rate environment and market sentiment.
José Torres, Senior Economist at Interactive Brokers, stated that the core focus of the Fed meeting is the impact of the Middle East war on inflation—whether it constitutes a one-time shock or has lasting effects. Although the market broadly anticipates the Fed will pause rate hikes, soaring oil prices have clouded the outlook for future rate cuts. Wall Street currently expects only a 25-basis-point cut in 2026, significantly lower than the two to three cuts anticipated at the start of the year. Additionally, some central banks are already adopting a more hawkish tilt; Australia announced a rate hike this morning, and the EU and UK are seriously evaluating the possibility of increases. Policy divergence among global central banks is expected to heighten volatility in the gold market.
In summary, gold prices are currently confined to a narrow range. Weakening safe-haven demand, tightening rate expectations, escalating geopolitical tensions, and persistent inflation concerns are interwoven, collectively dictating market direction. OEXN believes that policy decisions from multiple central banks this week, along with related statements on the Iran war, will be pivotal in determining gold's future trajectory. Investors are advised to closely monitor the Fed's policy guidance and signals from other central banks regarding rate adjustments to navigate market volatility effectively and capitalize on opportunities in the gold market.