Gold prices dropped by more than 1% during a quiet Monday session, as escalating U.S.-Iran tensions bolstered the U.S. dollar and dampened hopes for imminent interest rate cuts. Spot gold declined 1.3% to $4,553.53 per ounce, while U.S. gold futures fell 1.7%, with trading volumes thinned by market holidays in China, Japan, and the UK.
Geopolitical volatility sent oil prices surging past $113 per barrel following unconfirmed reports regarding a U.S. warship in the Strait of Hormuz. Although U.S. Central Command denied any vessels were hit, the resulting “flight to safety” benefited the U.S. dollar over bullion. Analysts note that gold remains under pressure as investors favor the dollar as a defensive asset in the face of shifting geopolitical and inflationary risks.
The conflict has caused Brent crude prices to nearly double since January, a trend that significantly complicates the global inflation outlook. As rising energy costs force manufacturers to raise prices, central banks are expected to maintain higher interest rates for a longer period. Because gold is a non-yielding asset, the high opportunity cost in a high-rate environment has led to a 13% decline in its value since the war began.
Internal debates at the Federal Reserve underscore this shift; while rates remained steady last Wednesday, several officials suggested that the oil price shock may necessitate future hikes rather than cuts. The broader precious metals market also faced a downturn, with silver falling over 3%, while platinum and palladium saw losses of 2.5% and 3.5%, respectively.
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