Gold fell on Tuesday as military strikes in the Persian Gulf dimmed hopes for a United States-Iran peace deal and reinforced concerns that persistent inflation could keep interest rates higher for longer. Bullion slipped as much as 1.5 per cent as the dollar climbed, with spot gold down 1.3 per cent to US$4,509.71 an ounce in New York trading.
Conflict Escalates Near Strait of Hormuz
U.S. and Iranian forces clashed near the Strait of Hormuz overnight, highlighting the tension between the two sides even as they touted progress toward an interim peace deal. The exchange of strikes came hours after U.S. President Donald Trump said negotiations with Tehran to extend their ceasefire and reopen the strait were proceeding. Secretary of State Marco Rubio has said negotiations would likely take a few days.
Oil continued to whipsaw on Middle East developments, with Brent topping US$100 a barrel after slumping more than seven per cent on Monday. The conflict has sent energy prices soaring, fanning inflation concerns and prompting traders to ramp up rate-hike bets.
Gold's Decline Since Late February
Bullion has slumped more than 14 per cent since the conflict erupted in late February. Higher borrowing costs weigh on the yellow metal, which does not pay interest. While hope of a U.S.-Iran deal has offered some support, the situation remains fragile and persistent inflation fears continue to loom over precious metals, said Ryan McKay, senior commodity strategist at TD Securities. Trend followers are sellers of gold, and prices still look much more likely to fall than rise, according to McKay.
Outlook for a Rebound
A sustained rebound in gold requires breaking away from the correlation with risk assets, said John Reade, chief strategist at the producer-funded World Gold Council. Gold has a better chance of recovering toward the end of the year even if the conflict ends now, as it will take time for the energy balance to be restored, he added.
Silver fell 2.4 per cent to US$76.21 an ounce, while platinum and palladium also declined. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency, was 0.2 per cent higher.
