Gold prices fell to a nearly one-week low on Monday, impacted by a stronger dollar, as rising energy prices increased inflation worries and lowered expectations for interest rate cuts by the U.S. Federal Reserve this year. Spot gold saw a decrease of 1.1%, trading at $4,694.30 per ounce as of 0100, reaching its lowest level since April 7. Gold futures in the U.S. for June delivery fell by 1.4%, closing at $4,717.80. The dollar index showed an upward trend, leading to a rise in the cost of bullion priced in dollars for holders of other currencies.
Oil prices surged past $100 a barrel, raising worries about inflation, as the U.S. Navy prepared a blockade of the Strait of Hormuz, which could restrict Iranian oil exports after the failed negotiations between the U.S. and Iran to settle the conflict. Iran’s Revolutionary Guards have issued a warning that any military vessels approaching the Strait will be seen as a breach of the ceasefire and will be dealt with decisively, underscoring the risk of a dangerous escalation. Spot gold has dropped over 11% since the beginning of the U.S.-Israel conflict with Iran on February 28.
Market participants currently see a low chance of a U.S. rate reduction this year, as rising energy prices may contribute to broader inflationary pressures and limit the potential for easing monetary policy. Before the conflict in the Middle East began, there were expectations of two Federal Reserve rate cuts for this year. While inflation typically boosts gold’s appeal as a safeguard, elevated interest rates create challenges for the demand for the non-yielding metal. Gold demand in India saw a slight uptick last week ahead of an important festival, though elevated prices tempered enthusiasm.
In China, premiums fell due to a decline in retail demand. SPDR Gold Trust, known as the largest gold-backed exchange-traded fund in the world, announced a decrease in its holdings by 0.1%, resulting in a total of 959.24 tonnes on Thursday. Among other metals, spot silver fell by 1.9% to $74.45 per ounce, platinum dropped by 1.3% to $2,019.35, while palladium saw a rise of 0.7% to $1,531.50.