Gold fell as the United States and Iran agreed to stop attacking each other, following tit-for-tat strikes that tested a fragile truce in a war that has fuelled global inflationary pressures. The metal dropped as much as 2.2 per cent toward US$4,000 an ounce before paring losses. President Donald Trump said peace talks with Iran are set to resume on Tuesday in Doha.
Gold's Decline Since War Began
Gold is down more than 23 per cent since the war began in late February and briefly dipped below US$4,000 last week. The war-driven spike in energy prices raised expectations that central banks would keep interest rates higher for longer, a negative for non-yielding bullion. Oil prices nudged higher on Monday.
Spot gold dropped 1.5 per cent to US$4,026.65 an ounce as of 10:55 a.m. in New York. Silver slipped 1.9 per cent to US$58.05. Platinum retreated, while palladium gained. The Bloomberg Dollar Spot Index was little-changed.
Market Sentiment and Analyst Views
Gold holding above US$4,000 despite renewed signs of tension in the strait “suggests marginal dip buyers have returned and are willing to defend this level,” said Justin Lin, an analyst at Global X ETFs Australia. “I expect gold to become increasingly resilient to Middle East volatility, especially now that it has completely erased year-to-date gains and fast-money investors have likely largely moved on.”
The latest developments in the Middle East come in the wake of U.S. inflation data last week that, while high, was within analyst estimates. Federal Reserve Bank of Richmond President Tom Barkin on Sunday warned that inflation is too high, though he sees tentative signs that price pressures may moderate soon.
Impact of Energy Prices and Central Bank Policy
The war-driven spike in energy prices raised expectations that central banks would keep interest rates higher for longer, a negative for non-yielding bullion. Higher rates increase the opportunity cost of holding gold, which offers no yield. Traders are now watching for further signals from the Fed and other central banks on the path of monetary policy.
Gold's decline reflects a broader shift in investor sentiment as geopolitical tensions ease and inflation expectations adjust. The metal has erased all year-to-date gains, and fast-money investors have largely moved on, according to Lin.
