NEW YORK: Gold fell 1percent on Monday, as elevated oil prices stoked worries over inflation and prolonged high interest rates, while peace talks between the United States and Iran remained unsolved.
Spot gold fell 1percent at USD4,667.99 per ounce, as of 0852 GMT. US gold futures for June delivery lost 1.1percent at USD4,677.80. The dollar rose, making greenback-priced bullion more expensive for holders of other currencies.
US President Donald Trump on Sunday rejected Iran’s response to a US proposal for peace talks to end the war, saying Tehran’s demands were “totally unacceptable.”
Brent crude oil prices rose above USD103 a barrel amid concerns the 10-week-old conflict will drag on, keeping shipping through the Strait of Hormuz paralyzed.
“Inflation risks still weigh heavy on the market’s collective mind, as attempts to end the Middle East conflict reached an impasse after the US and Iran rejected each other’s peace proposals,” said Han Tan, chief market analyst at Bybit.
Gold prices have fallen more than 11percent since the war began in late February, pressured by higher oil prices.
Elevated crude oil prices can stoke inflation, increasing the likelihood of higher interest rates. While gold is seen as an inflation hedge, high rates tend to weigh on the non-yielding asset. Traders have largely priced out US Federal Reserve rate cuts this year, with markets now seeing a 31percent chance of a hike by March 2027, according to CME Group’s FedWatch tool.
So gold drops 11% since the war started, but now it’s falling again because oil hit $103 and inflation fears are back. Trump rejecting Iran’s peace proposal isn’t helping either.
I don’t get it – gold is supposed to be a safe haven, but it’s tanking because oil is up and rates might stay high. Guess the Strait of Hormuz being paralyzed is really spooking markets.
Han Tan from Bybit nailed it: inflation fears are weighing on gold as the US-Iran peace talks hit a dead end. With Trump calling Iran’s demands ‘totally unacceptable,’ I don’t see a resolution anytime soon.
The war mentioned here in Tehran, Hormuz involving US and Iran is significant. The authorities involved have their work cut out for them.
UN and US and Iran are central to this development. Stakeholders will be watching the next steps closely.