In early Asian trading on Monday, spot gold experienced a sudden and significant decline, with prices falling to around $4,485 per ounce, marking a drop of approximately $55. Analysts noted that recent developments in the Middle East have pushed oil prices to a two-week high, coupled with a stronger U.S. dollar, placing downward pressure on gold.
According to Bloomberg, the slow progress in reopening the Strait of Hormuz has continued to fuel inflation concerns and led to a sharp sell-off in bond markets, sustaining gold's decline from last week. Gold prices fell nearly 4% last week.
The United States and Iran remain far from an agreement to end weeks of conflict and reopen the critical waterway for energy flows, with the strait effectively still closed. On Monday, rising oil prices increased the likelihood of interest rate hikes, which would pressure non-yielding gold.
Since its sharp decline early in the conflict, the precious metal has been trading within a relatively narrow range as investors assess the inflation risks that could keep interest rates high and the potential impact of prolonged conflict on economic growth and monetary easing. Gold prices have fallen about 14% since the conflict began.
A drone attack on Sunday that caused a fire at a nuclear power plant in the United Arab Emirates has again highlighted the risks to the fragile ceasefire in the Middle East.
Concerns that war-driven inflation surges could force central banks to raise interest rates have intensified, leading to a global bond market sell-off. Bond yields have soared as doubts grow over when Middle Eastern oil supplies might normalize.
Daniel Hynes, senior commodity strategist at ANZ Banking Group, stated, "With rising yields, the risk-reward profile for gold has deteriorated, prompting investors to reduce positions." However, he expects central banks to eventually shift toward monetary easing due to growth concerns, which would support gold prices. The bank forecasts that gold could rebound to $6,000 per ounce by mid-2027.
Although gold is seen as a hedge against inflation, higher interest rates typically pressure the non-yielding metal. Gold demand in India has declined due to stricter import policies, with imports falling to very low levels as traders face higher tariffs. Over the weekend, India further tightened silver import rules to support its currency, which has fallen to historic lows.
Meanwhile, traders this week will focus on the minutes from the Federal Reserve's April meeting for clues on future interest rate direction.
Following the drone attack on the UAE nuclear plant, oil prices reached a two-week high. In early Asian trading on Monday, as U.S.-Israeli efforts to end the war with Iran appeared stalled and after the attack on the UAE facility, U.S. President Donald Trump is expected to discuss military options against Iran.
Brent crude futures rose $1.44, or 1.32%, to $110.70 per barrel, hitting their highest level since May 5. U.S. West Texas Intermediate crude was at $107.26 per barrel, up $1.84, or 1.75%, after reaching its highest point since May 4.
UAE officials stated they are investigating the source of the attack and affirmed the country's full right to respond to such "terrorist acts." Anwar Gargash, diplomatic advisor to the UAE president, characterized the attack as an "act of terrorism" and suggested Iran might be involved.
On social media platform X, Gargash stated that whether the attack was "carried out directly by the mastermind or through proxies," it represents a "dangerous escalation" and accused the attackers of "disregarding the safety of civilian lives in the UAE."
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