No Fed rate cut, Dollar rally may keep gold prices under pressure: Analyst

Rising oil prices and a stronger dollar are limiting gold's safe-haven appeal as markets reassess Fed rate cut expectations

Gold: Dollar emerges as a competitor for safe haven demand

Gold price performance

 

On March 12, spot gold traded in a narrow range of $5,100-$5,200. The yellow metal came under pressure once again on rising oil prices. 

Brent crude oil surged past $100, though it pared some of its intra-day gains after the reports that some ships were allowed to pass through the Strait of Hormuz. 

At the time of writing this article, spot gold was trading with a loss of around 0.9 per cent at $5132. The MCX April gold, at ₹161,000, was down by nearly 0.5 per cent. 

 

The US Dollar has been given a fresh lease of life due to the Iran war, as investors now prefer US assets over risk prone emerging markets and Europe.  

The US's energy independence and its status of a net petroleum exporter have once again revived the US Dollar's role as safe haven in the times of oil supply crunch. In addition, the institutional independence -- the SCOTUS decision against Trump tariffs and the Fed maintaining its independence unscathed have also served to support the Greenback.  

US equities have done better than their global peers, while decline in the US bonds has been proportionate. 

In the week ending March 6, the shiny metal closed with a weekly loss of around 2 per cent, first weekly loss in five weeks, as the US Dollar strengthened on safe haven demand due to sharp spike in oil prices.

 IEA's SPR Oil release plan

The IEA said that the Iran war is causing the biggest oil supply disruption in history. The IEA's plan to record release 400mb from oil reserves of its 32 members is being seen as a temporary relief.  

The expected pace of oil release of 4 million barrels per day would take 100 days for the entire planned release which, given the supply loss of around 16-18mbpd, will be insufficient. 

As per the US, escorts of ship across the Strait of Hormuz could happen by the end of the month.

Geopolitics watch

Confusion reigns whether Iran has deployed mines in the Strait of Hormuz or not. 

Iran told its regional intermediaries that any ceasefire would depend upon the US guaranteeing that there would not be any attacks by Israel/US in future. The Islamic Republic also wants to preserve its right to Uranium enrichment. 

Iran's new Supreme leader Maztaba Khamenei said in his defiant message that the Strait of Hormuz should stay closed and warned that other fronts may be opened if the war persists. He asserted that Iran would continue to attack Gulf. 

Iran's ability to make more Shahed-136 weapons and drones has been reduced by US and Israeli air strikes that disrupted the organization and coordination.

US Dollar Index and yields

Long-term bonds under pressure: Surging energy prices are stoking concerns about spending amid already strained fiscal situations, which is weighing on the bonds. The 30-year US yields rose to 4.9 per cent -- highest in a month. 

The US may seek additional funding of as much as $50 billion to meet the costs of war. It is being estimated that the US is incurring an expense of nearly $1 billion per day in its war against Iran. 

Europe is planning to ramp up defence spending and provide energy cost relief support. 

China's 30-year bond yields have risen to 2-year high on inflation worries. 

At the time of writing, the US Dollar Index at 99.62 was up by around 0.40 per cent. Two-year US yields hardened by 5 bps to 3.70 per cent, while ten-year US yields, at 4.24 per cent, were up by 1 bps.

Fed rate cut odds

The Fed rate cut odds have dwindled following the Iran war leading to surge in energy prices. Investors expect next Fed rate cut in September/October and now look for slightly less than one rate cut this year as opposed to more than two rate cuts a few weeks ago. 

ETF and COMEX inventory

Total known global gold ETF holdings fell for six straight days as the Gulf war broke out. A net inflow on March 11, which took the holding level to 99.95 MOz, up by 1 MOz YTD. In the week ending March 6, the ETF outflows was the largest in at least 2 years. ETFs have seen a net outflow of around 1 MOz since the war began. 

Registered COMEX gold stocks have fallen for five consecutive weeks. Registered gold inventory, currently at 16.83 MOz, is at the lowest level since February 18, 2025.

Polish Central Bank dropped the plan to sell gold to fund defence spending

The Polish Central Bank's plan to actively manage the 570 tons of gold reserves to finance defence spending has been shelved after the Prime Minister Tusk rebuffed the idea. The Central Bank is making $53.60 billion unrealized profits on its gold holdings.

Data roundup

US data released on Thursday were slightly negative for the yellow metal. January trade balance came in at -$56.50 billion Vs the estimate of -$66 billion. Both continuing claims and initial jobless claims fell from their prior levels. Housing starts rose to 1487K in January Vs the estimate of 1341K, though building permits at 1376K trailed the estimate of 1410K.

Central bank watch

The US FOMC will deliver its monetary policy decision on March 18 wherein the Committee is expected to keep the overnight Fed Fund rate unchanged at 3.50-3.75 per cent. 

Bank of Japan's monetary policy decision is due on March 19. The Central Bank is expected to keep the benchmark rate unchanged at 0.75 per cent. 

Bank of England is likely to change its policy rate unchanged at 3.75 per cent in its meeting on March 19. 

Similarly, the ECB is expected to stand pat on its main refinancing rate of 2.15 per cent in its monetary policy decision due on the same day.

Upcoming data

Key US data on tap in near term include Feb. real personal spending, February PCE Price Index, Q4 GDP, University of Michigan Sentiment and inflation expectations, JOLTs job openings (all on March 13), Feb. industrial production, Feb. PPI (March 18) and Philadelphia Business Outlook (March 19). 

Investors will also monitor UK's monthly GDP and monthly job report to be released on March 13 and March 19 respectively.

Gold price outlook

The US Administration is trying to bring down oil prices in coordination with other key nations. The EIA’s oil release plan may not be effective as maths does not add up. 

The Iran war may not end anytime soon. The Iraq war in 2003 lasted for 21 days. Iran is much stronger than Iraq of 2003. In addition, lack of US ground troops reduces the effectiveness of the US-Israel operations. 

Opening the Strait of Hormuz is the only viable and lasting solution to the oil supply crunch. 

Although February non-farm payroll report was utterly disappointing, the Fed may wait for more evidence as bad weather was also responsible for loss of jobs. 

The US Dollar Index can rise to 102 should it take out the resistance in 100-100.40 zone. In that case, gold prices can slump sharply. 

Dip buying in oil will continue until some concrete positive developments concerning the Iran war occur, which will keep the upside in the yellow metal capped. Spot gold is expected to range trade in short term. Support is at $5100 (₹160,000)/$4996 (₹156,700).  

Resistance is at $5250 (₹164,700)/$5300 (₹166200)/$5450 (₹171,000). 

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Disclaimer: This article is by Mohammed Imran, research analyst. Mirae Asset Sharekhan. Views expressed are his own.