Progress in reopening the Strait of Hormuz remains stalled, intensifying market concerns over inflation. Global bond markets have tumbled sharply in response, while gold prices have narrowed their decline but overall remain weak.
Spot gold is trading near $4,550 per ounce, having fallen nearly 4% over the past week. The U.S. and Iran have yet to reach an agreement to end the weeks-long conflict and restore transit through the Strait of Hormuz, a critical energy shipping lane that is currently nearly at a standstill. Oil prices rose on Monday, further increasing the likelihood of central bank interest rate hikes, which tend to weigh on non-yielding assets like gold.
After an initial sharp drop following the outbreak of hostilities, gold prices have been trapped in a narrow trading range. On one hand, inflationary pressures may force interest rates to remain elevated; on the other, the prolonged conflict raises fears of an economic downturn and carries expectations for monetary easing, leaving the market in a dilemma. Since the conflict began, gold prices have fallen by approximately 14%.
A drone attack on a nuclear power plant in the United Arab Emirates on Sunday, which sparked a fire, also highlighted the significant risks lurking behind the fragile ceasefire in the Middle East.
Growing market concerns that the war could drive a surge in inflation, forcing central banks to raise interest rates, have triggered a sell-off and sharp decline in global bond markets. There is widespread skepticism that Middle Eastern oil supplies can quickly return to normal, and the bond sell-off has pushed yields significantly higher.
At the time of writing, spot gold is up 0.2% at $4,547.65 per ounce; silver is up 0.7% at $76.51 per ounce, after falling more than 5% last week. The U.S. Dollar Spot Index, which measures the dollar's performance, rose 1.2% last week and is largely flat today.
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