Key Takeaways
- Gold plummeted as much as 2.2%, sliding under the $4,650 per ounce threshold on Monday
- Diplomatic negotiations between the US and Iran in Pakistan concluded without agreement
- President Trump authorized a naval blockade of the Strait of Hormuz, effective 10 a.m. ET
- March CPI data showed 3.3% annual inflation, primarily fueled by energy sector increases
- Federal Reserve rate cut expectations delayed by a minimum of 12 months, creating headwinds for gold
Precious metals experienced a significant downturn Monday following the breakdown of diplomatic efforts between Washington and Tehran and the subsequent announcement of a US naval blockade targeting the Strait of Hormuz.
Spot gold tumbled as much as 2.2%, momentarily trading beneath the $4,650 per ounce level. The metal later regained modest ground, settling at $4,729.02 an ounce during early afternoon trading hours in Singapore.
Gold futures contracts similarly retreated, shedding 0.9% to reach $4,743.20 per ounce.
Diplomatic discussions conducted in Pakistan over the weekend between American and Iranian representatives failed to yield any breakthrough. The nations remained at odds over Tehran’s nuclear program, jurisdiction over the Strait of Hormuz, and Iran’s support for various militant organizations throughout the region.
Following the unsuccessful talks, President Donald Trump authorized a naval blockade of the strategic waterway, scheduled to commence at 10 a.m. Eastern Time Monday. Trump further declared that the US military would intercept any ships that had compensated Iran with toll payments for transit rights through the strait.
Prior to the outbreak of hostilities, approximately 20% of global crude oil shipments and liquefied natural gas volumes transited through the Strait of Hormuz.
Inflation Pressures Weigh on Precious Metals
Energy commodity prices for oil and natural gas climbed sharply in response to the blockade declaration. This development elevated inflation forecasts, diminishing prospects for imminent interest rate reductions by the Federal Reserve.
Gold generates no yield, making it more appealing during periods of low interest rates. When rate cut expectations diminish, investor appetite for the yellow metal typically weakens.
Consumer price index figures published Friday compounded the bearish pressure. Annual inflation reached 3.3% in March, representing a substantial acceleration from February’s 2.4% reading. Gasoline price increases accounted for approximately three-quarters of the monthly gain, per Bureau of Labor Statistics data.
CME FedWatch tools indicate market participants have postponed rate cut forecasts by at least one full year.
The US dollar index advanced roughly 0.4% Monday, adding another layer of pressure on gold valuations. Because gold trades in dollar denominations, currency strength makes the metal costlier for international purchasers.
Silver declined nearly 2% to settle at $74.39 per ounce. Platinum trading remained relatively flat, while palladium posted modest gains.
Gold’s Track Record Since Conflict Erupted
The precious metal has surrendered approximately 10% of its value since Middle Eastern hostilities commenced in late February. During the initial phase, a liquidity crisis forced investors to liquidate gold holdings to offset portfolio losses elsewhere.
In subsequent weeks, gold recovered a portion of those losses as economic growth concerns provided underlying support.
Research analysts at ANZ Banking Group suggested gold might retest the recent $4,650 floor but could find stability at that price point. Swiss wealth management firm Union Bancaire Privée reduced its gold allocation from roughly 10% to 3%, though the institution noted it has begun incrementally rebuilding bullion positions in client accounts.
Producer price index statistics from the United States are scheduled for release later this week.
