Gold (XAUUSD) is down by 4% on Thursday and has now shed 14% since the start of the U.S.-Iran war on February 28. However, that price action is normal, according to WisdomTree Head of Commodities and Macroeconomic Research Nitesh Shah.
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Trade QQQ with leverage“Every big geopolitical risk event we’ve seen in the past, we’ve seen a bit of gold price downside before it goes up,” Shah told Kitco News, adding that current prices present a “good opportunity to buy.”
Gold Pressured by Falling Interest Rate Cut Odds
The closure of the Strait of Hormuz has raised the risk of higher inflation, sending interest rate cut odds plunging. When the war began, the most favored outcome at 33.7% was for the Fed to cut rates twice this year, according to the CME FedWatch tool. Now, the most likely outcome is for zero rate cuts by year-end with 56.2% odds. In addition, the odds of a 25 bps rate hike have climbed to 33.9% compared to 0% a month ago.
Gold tends to benefit from lower rates, as the opportunity cost of holding the precious metal compared to interest-bearing assets goes down. Still, Shah expects the Fed to hold rates instead of raising them and believes that gold could reach $6,000 per ounce in response to persistent geopolitical tensions.