Bullion has recovered sharply from its wartime sell-off, with lower oil prices, softer US inflation, and renewed institutional interest supporting the recovery.
Gold has been showing signs of regaining its traditional safe-haven appeal after an unusual sell-off during the US-Israeli conflict with Iran. The precious metal has recovered about 9% in August to trade around $4,400 an ounce, reversing part of the steep decline recorded after the conflict began.
Gold’s recent performance has challenged its usual behavior during geopolitical crises. Rather than immediately benefiting from heightened tensions, bullion fell sharply as investors sought liquidity and markets reacted to surging oil prices. The decline had taken gold from a record high of about $5,595 an ounce in January to below $4,000 in June. The latest recovery suggests that some of the initial market shock has begun to fade, allowing investors to reassess the metal’s role as a store of value during periods of uncertainty.
Lower oil prices and inflation support sentiment.
A decline in oil prices has been an important factor behind the latest improvement in gold. Lower energy costs can ease inflation concerns, while recent softer US inflation data have reduced expectations for additional interest-rate increases.
That combination is significant for gold because the metal does not generate interest income. When expectations for higher rates weaken, the opportunity cost of holding bullion can become less restrictive. The US dollar and Treasury yields will therefore remain important factors for the gold market alongside geopolitical developments.
Institutional buying offers additional support.
The rebound is also showing signs of renewed institutional interest. Analysts have pointed to possible rebuilding of positions by large investors, including central banks and sovereign wealth funds, although the scale of such buying remains difficult to confirm.
Demand for large gold bars has also strengthened in parts of Asia. In China, gold traded at a premium of around $1.50 an ounce last week, suggesting renewed buying interest in one of the world’s major bullion markets.
The recovery is not without obstacles. Uncertainty surrounding efforts to end the Iran conflict, subdued jewellery and coin demand and relatively modest inflows into gold-backed ETFs could restrict further gains. Technical indicators also suggest that gold may be approaching overbought territory, while its 200-day moving average, currently around $4,504 an ounce, represents an important resistance level.
For now, gold’s rebound suggests its safe-haven status is returning, but the next phase will depend on geopolitical developments, US monetary policy, oil prices, and the strength of institutional demand.
