Gold is rising again after a heavy March decline. The recovery is being driven by a weaker US dollar, lower Treasury yields and signs that the conflict involving Iran may be moving towards an end. Those shifts have improved sentiment towards bullion and reduced some of the pressure that had pushed the metal sharply lower in recent weeks.
The recent fall was severe. Gold recorded its steepest monthly decline since 2008, following a period in which higher oil prices and geopolitical tension had raised concerns about inflation. That created a problem for gold. While the metal often benefits from uncertainty, it can come under pressure when markets start to believe inflation will stay higher for longer and central banks will delay interest rate cuts. That is what happened during the sell-off.
The current rebound suggests that view is changing. Hopes of de-escalation in the Middle East have eased some inflation concerns, especially those linked to energy prices. At the same time, the weaker dollar has made gold more attractive to buyers using other currencies, while lower bond yields have reduced the disadvantage of holding a non-yielding asset. In simple terms, the backdrop has become more supportive.
Gold is no longer falling because of fears that higher inflation will keep rates elevated. It is recovering because those fears have softened, at least for now.
KEFI Gold and Copper plc (LON:KEFI) is an exploration and development company focused on gold and copper deposits in the highly prospective Arabian-Nubian Shield. The Company operates in Ethiopia and Saudi Arabia with projects including Tulu Kapi project, Jibal Qutman EL and Hawiah.
