During the Asian trading session on Monday, May 18, the international gold price experienced a sharp decline, falling approximately $55 to around $4,485 per ounce. Analysts attribute the drop to expectations of easing tensions in the Middle East, which pushed oil prices to a two-week high, coupled with a strengthening U.S. dollar, putting pressure on the precious metal. Additionally, the prolonged closure of the Strait of Hormuz continues to fuel inflation concerns, leading to a sell-off in bond markets and further diminishing the appeal of non-yielding assets.
The United States and Iran remain far from an agreement to end weeks of conflict and reopen the critical waterway for energy flows, leaving the strait effectively closed. The rise in oil prices on Monday increases the likelihood of interest rate hikes, which typically weigh on gold as a zero-yield asset. Since its initial sharp decline at the onset of recent conflicts, gold has traded within a relatively narrow range as investors assess the inflation risks that could keep interest rates elevated against the potential for monetary easing to support growth if conflicts persist. Gold prices have fallen approximately 14% since the conflicts began.
A drone attack on Sunday that caused a fire at a nuclear power plant in the United Arab Emirates (UAE) has again highlighted the risks to the fragile ceasefire in the Middle East. Global bond markets sold off sharply amid heightened fears that war-driven inflation surges could force central banks to raise interest rates. Bond yields soared as doubts grew over when Middle Eastern oil supplies might normalize. Daniel Hynes, Senior Commodity Strategist at ANZ Banking Group, noted that with rising yields, "the risk-reward profile for gold has deteriorated, prompting investors to reduce positions." However, he anticipates that central banks will eventually pivot to monetary easing due to growth concerns, which would support gold prices. The institution forecasts a potential rebound for gold to $6,000 per ounce by mid-2027. While gold is traditionally seen as a hedge against inflation, higher interest rates generally pressure the non-yielding metal.
Gold demand in India has softened due to stricter import policies. Imports have fallen to extremely low levels as traders face higher tariffs. Over the weekend, India further tightened silver import rules to support its local currency, which has fallen to record lows. Meanwhile, traders this week will scrutinize the minutes from the U.S. Federal Reserve's April meeting for clues on the future path of interest rates.
Following the drone attack on the UAE nuclear facility, oil prices hit 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 in the UAE, oil prices reached a two-week peak, with U.S. President Donald Trump expected to discuss military options regarding Iran. Brent crude futures rose $1.44, or 1.32%, to $110.70 per barrel, touching their highest level since May 5. U.S. West Texas Intermediate (WTI) 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 asserted the country's full right to respond to such a "terrorist act." Anwar Gargash, Diplomatic Advisor to the UAE President, characterized the attack as an "act of terrorism" and suggested possible Iranian involvement. On social media platform X, Gargash stated that whether the attack was "carried out directly by a sponsor or through proxies," it represented a "dangerous escalation" and accused the perpetrators of "disregarding the safety of Emirati civilians."
The morning's decline in gold prices is essentially a continuation of Friday's downward momentum, representing a follow-through sell-off. However, this is likely the final wave of correction before the market enters an upward trajectory.
In current trading, gold has demonstrated resilience. After dipping to around $4,480, a strong bullish candlestick quickly propelled the price back up to the $4,530 level. As emphasized previously, only after undergoing a deep adjustment can gold accumulate sufficient momentum for a stronger rebound. The subsequent upside target remains firmly set at the $4,600 level.
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