Gold maintained a downward trend as the lack of progress in reopening the Strait of Hormuz intensified inflation worries, triggering a bond market sell-off. The price of gold initially fell by 1.3% before recovering most losses, trading around $4,535 per ounce, following a nearly 4% decline the previous week.
Significant disagreements remain between the United States and Iran regarding an agreement to end the weeks-long conflict and reopen the Strait of Hormuz, a crucial energy transit waterway that remains effectively closed. Oil prices rose on Monday after U.S. President Trump reiterated threats against Iran, increasing the likelihood of interest rate hikes, which would pressure non-yielding assets like gold.
Since its sharp decline early in the conflict, the precious metal has been trading within a relatively narrow range. Investors are assessing inflation risks that could lead to higher interest rates against growth concerns that might prompt monetary policy easing as the conflict persists.
Gold has fallen approximately 14% since the outbreak of the conflict. On Sunday, a drone attack on a nuclear power plant in the United Arab Emirates, which caused a fire, highlighted the risks to the fragile ceasefire in the Middle East.
The global bond market experienced a sell-off amid growing concerns that war-induced inflation spikes will force major central banks to raise interest rates. This sell-off caused yields to surge as doubts grew about how soon Middle Eastern oil supplies might return to normal.
Daniel Hynes, Senior Commodity Strategist at ANZ Group Holdings Ltd., noted in a report that "the risk-reward profile for gold has deteriorated as yields climbed, prompting investors to close positions." However, the institution expects major central banks to eventually shift toward easier monetary policy due to growth concerns, which would support gold prices. ANZ forecasts gold to rise to $6,000 per ounce by mid-2027.
Gold demand in India has been impacted by tighter import policies, but this may be offset by robust demand from China. India's gold imports have dropped to very low levels as traders respond to higher tariffs. Over the weekend, India further tightened silver import rules to defend its currency, with the Indian rupee having fallen to a record low.
Meanwhile, traders will closely watch the minutes from the Federal Reserve's April meeting this week for clues on the future path of interest rates.
At the time of writing, spot gold was down 0.1% at $4,536.26 per ounce. Silver fell 0.8% to $75.22 per ounce, after declining over 5% the previous week. The U.S. Dollar Index rose 0.1%, following a 1.2% gain last week.
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