Gold prices rose in the European market on Thursday, extending gains for a second consecutive session, supported by strong demand for the metal as a safe haven amid the escalating conflict in the Middle East.

However, those gains were limited by the renewed rise of the US dollar against a basket of global currencies, supported by continued buying as the most attractive available investment, as expectations for Federal Reserve interest rate cuts during the first half of this year continued to fade.

Price Overview

Gold prices today rose by 1.05% to $5,195.13, up from the opening level of $5,140.93, while recording a session low of $5,121.10.

At Wednesday’s settlement, gold prices posted gains of more than 1.0%, as part of a recovery from a two-week low of $4,996.10 per ounce.

The Iran war

Israel launched a wave of large-scale airstrikes on Tehran on Thursday, targeting what it described as infrastructure belonging to Iranian authorities, after Iranian missiles forced millions of Israelis to take shelter.

The US dollar

The US Dollar Index rose by 0.25% on Thursday, resuming gains that had temporarily paused in the previous session, approaching once again its highest levels in four months, reflecting renewed strength of the US currency against a basket of global currencies.

This rise comes as investors continue to favor the dollar as the most attractive available investment, amid fading expectations that the Federal Reserve will cut interest rates during the first half of this year.

US interest rates

On Wednesday, US President Donald Trump officially nominated former Federal Reserve Governor Kevin Warsh to lead the US central bank.

In its latest Beige Book report released on Wednesday, the Federal Reserve said US economic activity expanded slightly, prices continued to rise, while employment levels remained largely stable in recent weeks.

According to the CME Group’s FedWatch tool, markets are pricing a 97% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25 basis-point rate cut stands at 3%.

To reassess those expectations, traders are awaiting the release of weekly US jobless claims later today, followed by the US February employment report on Friday.

Gold outlook

Hamad Hussein, economist at Capital Economics, said that on one hand, safe-haven demand for gold could increase amid the conflict in the Middle East. On the other hand, the risk of persistently high energy prices, which could eliminate the possibility of rate cuts and increase the likelihood of further tightening, may limit additional gains.

SPDR Gold Trust

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined by around 18 metric tons on Wednesday, marking the second consecutive daily drop, bringing the total to 1,081.04 metric tons, the lowest level since February 19.

The euro fell in European trading on Thursday against a basket of global currencies, resuming losses that paused temporarily yesterday against the US dollar and moving toward retesting a four-month low, as surging global energy prices driven by the Iran war weigh on Europe’s economic outlook.

The crisis is expected to push prices higher and accelerate inflation across the eurozone, placing growing inflationary pressure on policymakers at the European Central Bank.

At the same time, the European economy may require additional monetary support to limit the slowdown in economic activity, creating a complex policy dilemma between containing inflation and supporting growth.

Price Overview

Euro exchange rate today: the euro declined by 0.25% against the dollar to $1.1605, down from the opening level of $1.1633, after touching a session high of $1.1647.

The euro ended Wednesday’s trading up by 0.2% against the dollar, marking its first daily gain in the past three sessions as part of a recovery from a four-month low of $1.1530.

US Dollar

The dollar index rose by 0.25% on Thursday, resuming gains that paused temporarily in the previous session and approaching the highest levels in four months, reflecting renewed strength in the US currency against a basket of major and secondary currencies.

The advance comes as investors continue to favor the dollar as a preferred alternative investment amid growing fears that the war in the Middle East could widen, which would negatively affect global trade and the world economy.

Markets are awaiting the release of the US monthly employment report on Friday, which is expected to provide strong and decisive evidence regarding the Federal Reserve’s interest rate path during the first half of this year.

Global energy prices

Global oil and gas prices surged due to the fallout from the US-Israeli war on Iran, which disrupted energy exports from the Middle East. Tehran’s attacks on ships and energy infrastructure led to the closure of shipping routes in the Gulf and halted production from Qatar to Iraq.

Brent crude rose more than 16% this week and reached a 20-month high of $85.07 per barrel, while European gas prices jumped 70% since the end of last week.

Views and analysis

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. Europe’s natural gas storage refill season is about to begin, and the European Union is entering the season with record-low gas levels in storage, meaning it will need to purchase large amounts of energy at a time when prices could rise significantly.

George Saravelos, head of global FX research at Deutsche Bank, said the impact of the Iran war on EUR/USD revolves around one key factor: energy.

Saravelos added that a negative supply shock is currently forming, effectively acting as a direct tax on Europeans that must be paid to foreign producers in US dollars.

Analysts at ING wrote in a research note that the European Central Bank’s position has suddenly come into question, and they doubt the issue can be resolved in the very near term.

They added that the possibility of the ECB raising interest rates poses a serious risk to interest rate carry trades and could lead to a significant widening in eurozone government bond spreads.

The Japanese yen rose in Asian trading on Thursday against a basket of major and secondary currencies, extending its recovery for a second consecutive day against the US dollar amid continued buying from six-week lows, supported by recent comments from Japan’s finance minister.

Weak labor market data in Japan has reduced expectations for Japanese interest rate hikes in the near term, as investors await further evidence on the Bank of Japan’s monetary policy path this year.

Price Overview

Japanese yen exchange rate today: the dollar fell against the yen by 0.4% to ¥156.45, down from the opening level of ¥157.05, after touching a session high of ¥157.19.

The yen ended Wednesday’s trading up by 0.4% against the dollar, marking its first gain in the past three days after hitting a six-week low of ¥157.97 in the previous session.

Japanese Finance Minister

Japanese Finance Minister Satsuki Katayama said on Tuesday that financial officials are monitoring markets closely with a “strong sense of urgency.” When asked about the possibility of currency market intervention, she said Japan reached a mutual understanding with the United States last year.

Japanese interest rates

Data released this week in Tokyo showed Japan’s unemployment rate rose to 2.7% in January, above market expectations of 2.6%, after recording 2.6% in December.

Following the data, market pricing for a 25-basis-point interest rate hike by the Bank of Japan in March fell from 15% to 5%.

Pricing for a 25-basis-point rate increase in April also dropped from 40% to 25%.

In the latest Reuters poll, the Bank of Japan is expected to raise interest rates to 1% by September.

Analysts at Morgan Stanley and MUFG wrote in a joint research note that they had already viewed the probability of a rate hike in March or April as low, but with rising uncertainty stemming from developments in the Middle East, the Bank of Japan is likely to adopt a more cautious stance, further reducing the chances of a near-term rate hike.

Investors are now awaiting additional data on inflation, unemployment, and wages in Japan to reassess these expectations.

Palladium prices rose during Wednesday’s trading amid buying from lower levels after the industrial metal suffered heavy losses on Tuesday. The metal had come under strong pressure alongside declines in other industrial metals as geopolitical concerns linked to the ongoing conflict in the Middle East between the United States and China weighed on markets.

Key factors behind the decline:

Supply disruptions and geopolitical risks

Escalating tensions in the Middle East and disruptions to some mining operations increased concerns about supply. Paradoxically, these fears did not translate into strong buying interest, but instead added to market volatility while sellers remained dominant in trading.

Weak US support for electric vehicle policies

The fading political momentum behind electric vehicle incentives in the United States has pressured market sentiment. Palladium is widely used in automotive catalytic converters, so any slowdown in supportive policies weighs on expectations for industrial demand.

Clear technical pressure

The drop below the 20-day and 50-day moving averages sent a negative signal to short-term traders. The ADX indicator also reflects weak trend strength with a bearish bias, suggesting that downside momentum has not yet become strong enough to trigger a decisive reversal, despite sellers continuing to dominate the market.

Analysts’ views: mixed expectations

Analyst Anton Kharitonov of Traders Union believes the break below short- and medium-term averages is a warning signal, identifying $1,715 as a key support level. He noted that a break below this level could open the door to further losses, stressing that any current rebound appears fragile as long as sellers remain in control of the market.

Meanwhile, analyst Viktoras Karabitiants from the same firm takes a more optimistic view, noting that weekly indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) remain supportive over the longer term. He believes the range between $1,700 and $1,750 represents a consolidation phase within a broader long-term uptrend.

Analyst Parshwa Turakhia focuses on the short term, explaining that indicators such as Stoch RSI and CCI point to oversold conditions that could allow quick rebounds toward the $1,750 level, although high volatility in the market is expected to persist.

In US trading today, palladium futures rose by 1.9% to $1,678.5 per ounce at 16:27 GMT.