Gold braces for worst week in 4 decades

New York: Gold is probably headed for its biggest weekly loss since 1983, as war in West Asia boosted energy prices and reduced expectations for interest-rate cuts. Bullion’s decline deepened as the dollar and bond yields rallied after CBS reported that the US is preparing to potentially deploy ground forces into Iran. Traders increased their bets on rate hike to 50% by October amid concern that a protracted conflict could stoke inflation. Higher rates hurt gold as it doesn’t pay interest.

Iranian officials have become reluctant to even discuss reopening the Strait of Hormuz as they focus on surviving the attacks, according to a person involved in direct, high-level contacts with Tehran. The Wall Street Journal reported that the Pentagon is sending three warships and thousands of additional Marines to West Asia.

Gold – widely viewed as a haven – has dropped every week since the US and Israel attacked Iran last month. The retreat has come as the US dollar gained ground while investors sold stocks and bonds amid concerns over the ripple effects of elevated energy costs to inflation and global growth.

Gold’s pullback reflects a combination of profit-taking and liquidation amid concerns about less monetary easing, according to Rhona O’Connell, an analyst at StoneX Financial.

Prices above $5,200 had attracted a lot of buyers, leaving the market vulnerable to correction, O’Connell said. When prices started to fall, many investors hit their stop-loss levels – automatic instructions to sell if prices drop to a certain point – so selling quickly accelerated, she said. Technical signals, particularly moving averages, added to the downward pressure, she added.

Forced selling tied to the equity rout may also have contributed to gold’s decline, while slower central bank buying and outflows from exchange-traded funds have further weighed on sentiment, according to O’Connell.