Gold continued its gains, supported by buying on the dip, although escalating tensions in the Middle East kept the market under pressure.
The price of the precious metal rose by as much as 1.6% to surpass $4,140 an ounce, extending gains of nearly 2% from the previous session. Silver also climbed to close to $60 an ounce.
The two surges came at a time when Treasury yields remained high, and renewed hostilities between the United States and Iran have so far shown no sign of a resolution.
The momentum has already attracted new inflows into exchange-traded funds (ETFs), with total holdings rising by about 7.4 tons on Tuesday, according to a Bloomberg tally. This is the highest daily inflow in more than a month.
Bets on rising gold prices
At the same time, money managers increased their bets on rising gold prices, with net long positions rising by 4,293 to a total of 119,147, according to weekly data on futures and options contracts issued by the Commodity Futures Trading Commission (CFTC).
Justin Lin, an analyst at Global X ETFs, noted the sharp drop in volatility to a level last seen in early June, saying, This could be a price breakout following the collapse in volatility over the past few days. He added, It appears that buyers have successfully defended the $4,000 level, and selling pressure has eased.
The gold rally ignored the latest developments in the Middle East. US President Donald Trump downplayed the likelihood of immediate talks with Iran after the two sides exchanged fire near the Strait of Hormuz, while Houthi militants in Yemen threatened shipping in the Red Sea.
Trump's remarks came on the tenth day of US and Iranian attacks, as mediators continued their efforts to restart negotiations. Oil prices rose again on Wednesday, marking a significant jump in July since the resumption of hostilities in the nearly five-month-long conflict.
The direction of gold between war and interest
The conflict between the United States and Iran helped end a multi-year rally in gold, with the metal falling by about a quarter from its January peak near $5,600 an ounce.
Traders are weighing rising energy prices against weak US economic data while looking for clues about the Federal Reserve's interest rate path. High borrowing costs are a negative factor for gold, which does not offer a yield.
Spot gold rose 1.2% to $4,124.58 an ounce by 2:25 p.m. in Singapore. Silver climbed 1.1% to $59.45 an ounce. Platinum and palladium also advanced. The Bloomberg Dollar Index, a measure of the U.S. currency, was flat after rising 0.2% in the previous session.
