Gold Falls as Gulf Attacks Lift Dollar
Gold prices weakened on Tuesday (May 26) after military attacks in the Persian Gulf dimmed hopes for a US-Iran peace deal and reignited concerns that persistent inflation could keep interest rates high for longer. Bullion briefly fell as much as 1.9% as the dollar strengthened.
At 3:48 p.m. in New York, spot gold fell 1.4% to $4,506.48 per ounce. Silver fell 1.5% to $76.92, while platinum and palladium also weakened. The Bloomberg Dollar Spot Index edged up 0.1%, adding pressure on gold during the session.
The US-Iran clashes around the Strait of Hormuz underscored the continued high operational tensions despite both sides reporting progress toward an interim agreement. Oil prices remained volatile following developments in the Middle East, with Brent re-penetrating US$100 per barrel after falling more than 7% on Monday.
The escalation occurred hours after US President Donald Trump said negotiations with Tehran to extend the ceasefire and reopen the strait were still ongoing. US Secretary of State Marco Rubio also stated that negotiations would likely take several days, emphasizing that the diplomatic path had not yet yielded any immediate certainty.
From a fundamental transmission perspective, rising energy prices risk stalling the disinflation process and reinforcing expectations of a "higher for longer" monetary policy. This is a drag on gold because the precious metal does not provide a yield. TD Securities believes that hopes for a US-Iran deal have provided some support, but the situation remains fragile, while trend players remain on the sell side.
Gold has fallen more than 14% since the conflict broke out in late February, when a surge in energy prices prompted markets to raise bets on interest rate hikes. The World Gold Council believes that a sustained recovery in gold requires uncorrelating with risk assets, and the opportunity for a more solid recovery is likely to emerge towards the end of the year, as normalization of energy balances will take time even if the conflict subsides.
Source: Newsmaker.id
