Gold Slumps as US Prepares Hormuz Blockade
Gold prices fell sharply on Monday after US-Iran peace talks ended without a breakthrough and Washington's plan to block the Strait of Hormuz deepened the global energy supply crisis. Bullion briefly fell as much as 2.2% and broke below US$4,650 per troy ounce, erasing the previous week's gains.
The US military said the blockade would take effect at 10:00 a.m. Eastern Time (ET) on Monday, after weekend negotiations failed to secure a deal to transform a fragile ceasefire into a sustainable peace. Oil and gas prices surged, while President Donald Trump also stated that the US would intercept ships paying Iran levies for "safe passage" through Hormuz, a waterway through which about a fifth of the world's crude oil and LNG flowed before the war.
Market sentiment turned defensive: stock futures weakened and the dollar index strengthened by 0.5%, putting additional pressure on dollar-priced gold. The energy surge, while also raising inflation risks, has led markets to believe central banks are likely to delay interest rate cuts or even consider further tightening. This interest rate channel is typically negative for gold because it offers no yield.
The impact of the war on the US economy is also beginning to be seen in inflation data. March inflation reportedly rose by the most in nearly four years, with soaring gasoline prices accounting for nearly three-quarters of the monthly increase, according to US Bureau of Labor Statistics data released Friday.
Since the US-Israel war with Iran began in late February, gold has fallen more than 11%. In the early stages of the conflict, liquidity pressures prompted some investors to sell gold to cover losses in other assets. In recent weeks, gold has recovered some of its losses as markets began to weigh the risk of slowing growth, which could dampen expectations of high interest rates.
Daniel Hynes, senior commodity strategist at ANZ Banking Group, said the shift in focus to growth risks could still provide support despite gold's early-week decline. He predicted gold could retest last week's low of around US$4,650, but could potentially hold there if there is no further escalation that pushes yields and the dollar higher.
5 Key Points:
- Gold fell 2.2% to below US$4,650/oz after US-Iran negotiations stalled.
- The US will begin a blockade of Iranian ports at 10:00 AM ET, making Hormuz a risk hotspot again.
- Oil and gas surged, the dollar strengthened; this combination pressured gold through the FX and yield channels.
- The energy surge heightened inflation risks, reducing the chances of interest rate cuts and weighing on gold.
- Gold has been falling since late February; the market is waiting to see whether growth risks can stem the decline. (asd)
Source: Newsmaker.id
