Gold prices found renewed support on Wednesday, rebounding ahead of US ADP data after experiencing significant pressure on Tuesday. According to Orange Juice Newsletter, spot gold retested $5,230 early Wednesday after the heavy sell-off that saw spot gold falling as much as 5.6% to $5,029.59 per ounce and temporarily losing its safe-haven appeal. The precious metal ended a four-day rally and slipped below the $5,100 per ounce mark for the first time since February 19. The US Dollar index posted a solid 0.9% gain on the day, supported by safe-haven demand, though it really found its footing after media outlets reported attacks on Oil plants in the Gulf. As noted by Bob Haberkorn, senior market strategist at RJO Futures, "the move lower in gold appears to be driven by a flight to liquidity - a flight to cash. We have a strong dollar and bond yields trading higher."
The Iran conflict entered its fourth day as explosions rocked Tehran and Beirut, while a senior Iranian Revolutionary Guards official said on Monday that the Strait of Hormuz had been closed. Crude oil benchmarks jumped over 8% on Tuesday in response to the escalating tensions, with Both WTI Oil and Brent Crude ending higher by 5.6% and 6.7%, respectively, though buyers were on the front foot this morning. As reported by Orange Juice Newsletter, "a prolonged closure of the Strait would be bad news for Oil prices; I have seen forecasts of north of US$100 per barrel should this materialise." The US February ISM Manufacturing PMI came in at 52.4, above the 51.8 median estimate, though below the 52.6 reading in January. However, the prices paid sub-index jumped 11.5 points to 70.5 from 59.0, marking its highest level since mid-2022, primarily driven by increases in steel and aluminium prices and tariffs on many imported goods. Fawad Razaqzada, market analyst at City Index and FOREX.com, noted that "this dip in prices is likely to be short-lived, and flight to safety flows driven by geopolitical risk should support higher gold and silver prices."
US equity markets are bracing for significant losses as Wall Street futures point to sharp declines when trading begins. According to FTSE 100 Live, Nasdaq futures were down 2.1% ahead of Tuesday's open, with S&P 500 and Dow Jones futures both down around 1.7%. Tech stocks are expected to take the brunt of selling, with Nvidia down 2.7% in pre-market trading, while Micron and Seagate were down over 4% and SanDisk fell 6.2% lower. Airlines are also heading for significant declines as flights to the Middle East region look set to be cancelled for the foreseeable future. The market correction adds pressure on safe-haven assets as investors reassess risk exposure amid escalating geopolitical tensions.
The energy crisis has deepened as Qatar's state-owned energy company QatarEnergy announced it is halting production on some downstream products including urea, polymers, methanol and aluminum. The company previously announced that it had halted production of liquefied natural gas (LNG) after attacks on facilities in Ras Laffan and Mesaieed. QatarEnergy is one of the biggest producers of LNG in the world, making this production halt particularly significant for global energy markets. The escalation of energy disruptions has prompted investors to reassess their risk exposure and trim Fed rate-cut expectations, with money markets now pricing in just 46 bps of easing for the year-end, down from 53 bps a week ago.
The Bank of England rate cut expectations have rapidly diminished as Middle East events affect monetary policy predictions. According to FTSE 100 Live, "the market is rapidly pricing out the chance of a rate cut this month," with last week's 80% chance of a March 19th rate cut now standing at just over 20%. Kathleen Brooks, head of research at XTB, noted that "energy prices have been the main driver of UK inflation in recent years and the BoE will not want to lose control of price stability this year." The pound has dropped 0.9% versus the dollar to 1.3285, while the euro is similarly affected, down 0.8% at just below 1.16. The interest rate futures market has also rushed to price out a second rate cut from the BOE for 2026, with only one cut expected in late Q3.
Despite current pressures, market analysts maintain that gold's long-term prospects remain intact, though the path forward may be more challenging. As noted by Bob Haberkorn from RJO Futures, "this dip in prices is likely to be short-lived, and flight to safety flows driven by geopolitical risk should support higher gold and silver prices." Gold is typically preferred in low-rate environments as it yields no interest, making it less attractive when rates rise. However, the current environment of geopolitical uncertainty and potential inflation pressures from energy disruptions could continue to support safe-haven demand for precious metals in the medium term. Spot gold prices are currently trading 0.7% higher after Tuesday's fall, suggesting some recovery from the intraday lows, with the metal defending the $5,000 or 50% Fibonacci level after facing rejection at the 78.6% Fibonacci resistance at $5,342 amid bullish RSI.