Gold falls below $5,000 as Mideast war keeps oil prices elevated

Bullion fell as much as 1% in early trading, following its second consecutive weekly drop.

• Gold dropped below $5,000 an ounce amid Middle East conflict
• Oil prices surged after attacks on energy infrastructure
• Rate cut prospects fade as inflation fears rise

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Gold slid below $5,000 an ounce, as the war in the Middle East entered a third week and oil prices spiked after attacks on critical energy infrastructure over the weekend.

Bullion fell as much as 1% in early trading, following its second consecutive weekly drop. Higher energy prices and inflationary concerns arising from the conflict have cut expectations that the US Federal Reserve and other central banks will cut interest rates. Crude surged after US attacks on Iran’s main oil-export hub were followed by retaliatory attacks by Tehran on energy infrastructure in various Arab states.

Uncertainty over how long the war will last makes it difficult to assess the impacts on markets and the wider economy. An aide to President Donald Trump said the conflict could last four to six weeks, while both sides have given mixed signals. Trump said Iran wants to make a deal but the US wants better terms, while Tehran said it hasn’t asked for talks or a ceasefire.

As the war drags on, prospects for an interest-rate cut have dwindled. The latest US consumer spending data, released Friday, showed spending barely rose in January due to weaker-than-expected economic growth, even before the war began. Meanwhile, US consumer sentiment declined to a three-month low as fears mounted in recent weeks about the impact on gasoline prices from the conflict.

Traders now see virtually no chance of a rate cut at this week’s Fed meeting. Higher borrowing costs typically weigh on precious metals, which don’t pay interest. However, while rising oil prices may add pressure to gold in the near term, concerns over stagflation — a combination of slower growth and high inflation — may prompt investors to turn to gold as a better store of value over the longer term.

Spot gold fell 0.7% to $4,986.34 an ounce as of 7:26 a.m. in Singapore. Silver fell 0.7% to $80.03. Platinum and palladium dropped. The Bloomberg Dollar Spot Index slipped 0.1% after adding more than 1% in the previous week.