Gold dropped to near $4,000 an ounce as heightened tensions between the US and Iran, including tit-for-tat attacks in the Persian Gulf and a tanker hit, strained a ceasefire and pushed energy prices up. This renewed geopolitical instability, coupled with a stronger US dollar, fueled expectations for central banks to maintain higher interest rates for longer, making non-yielding precious metals less attractive. Spot gold was down 0.9% after a 1.6% rise on Friday, while oil advanced due to disruptions through the Strait of Hormuz.
Hebe Chen, an analyst at Vantage Markets in Melbourne, noted that while easing geopolitical tensions and lower oil prices could temper inflation risks, the market is prioritizing renewed US rate-hike expectations and a stronger US dollar. These factors increase the opportunity cost of holding gold. Gold has already lost approximately 25% since the war began in late February, breaking below key technical levels including its 200-day moving average. The US dollar has seen a more than 2% gain this month, adding pressure to gold prices, which are denominated in the US currency.
Bullion fell as much as 1.8% to $3,943, marking its lowest intraday level since November, following a nearly 2% decline in the previous session. Negotiations between Washington and Tehran are scheduled to begin Tuesday in Doha, though Iran's foreign ministry indicated it would send experts but ruled out direct talks. Separately, Iranian Deputy Foreign Minister Kazem Gharibabadi stated Iran's intention to continue overseeing traffic through the Strait of Hormuz, a move opposed by the US, Europe, and Gulf Arab nations.
Analysts like Peter Grant from Zaner Metals indicated that strong employment data could further support the Federal Reserve's hawkish stance, potentially leading to new lows for gold. Traders are awaiting key US employment data, including ADP employment figures on Wednesday and Nonfarm Payrolls on Thursday, for further clues on the Fed's monetary policy. The US Federal Reserve kept interest rates steady at its June meeting, but policymakers foresee a rate hike later this year to combat inflation, which remains above its 2% target. The market is assessing a 60% chance of a rate increase by September.
While gold typically acts as an inflation hedge, its non-yielding nature makes it less appealing when interest rates are high. Spot gold was down 1.3% at $3,962.80 an ounce in Singapore. Silver fell 1.7% to $57.28, with platinum and palladium also declining. The Bloomberg US Dollar Spot Index gained 0.2% after three consecutive days of losses. Justin Lin, an analyst at Global X ETFs Australia, observed that marginal dip buyers are returning at the $4,000 level, suggesting gold might become more resilient in the Middle East tensions.
