Spot Gold plunged to lows not seen since November 24th on Monday, extending a three-week streak of losses, as the Middle East conflict escalated, fueling inflation concerns and adding to prospects of higher interest rates globally.
Geopolitical risks rose further as the situation around the Strait of Hormuz deteriorated. US President Donald Trump issued a 48-hour ultimatum for Iran to reopen the crucial shipping channel and threatened to target Iran’s energy infrastructure if the demand is not met.
In response, Iran threatened to escalate strikes on energy infrastructure and to target key water desalination facilities across the Middle East should Trump follow through on a pledge to “obliterate” the country’s power plants.
“With the Iranian conflict into its fourth week, and oil prices hanging around the $100 level, expectations have pivoted from rate cuts to potential rate hikes, which have tarnished gold’s appeal from a yield point of view,” Tim Waterer, chief market analyst, KCM Trade, was quoted as saying by Reuters.
“Gold’s high liquidity appears to be hurting it during this risk-off period. Downturns in stock markets are leading to gold portions being closed to cover margin calls on other assets,” Waterer added.
The Federal Reserve raised its year-end PCE inflation forecast, highlighting the risk that higher energy prices tied to the Iran war could filter through to broader inflation. The central bank also signaled only one rate cut for this year and one additional cut for 2027.
Rate futures data indicated the US central bank was more likely to hike interest rates rather than lower them by year-end.
Views from policy makers at the Bank of Japan, the Bank of England and the European Central Bank collectively pointed toward a tighter policy bias in response to persistent inflation risks.
Higher interest rates tend to increase the opportunity cost of holding Gold, which pays no interest.
Spot Gold was last down 6.26% on the day to trade at $4,215.79 per troy ounce.
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