New York, USA – Global markets experienced a turbulent day on Monday, with gold prices falling to their lowest level in nearly a week, pressured by a strong US dollar and shifting expectations regarding monetary policy.
Meanwhile, energy prices surged to record highs, driven by escalating military tensions in the Middle East. This has fueled concerns about global inflation.
Sharp drop in gold prices
Gold fell 1.1% in spot trading to $4,694.30 an ounce, its lowest level since April 7.
U.S. gold futures for June delivery also declined, dropping 1.4% to settle at $4,717.80.
Analysts attribute the decline to the rising dollar index, which increased the cost of gold for holders of other currencies. Additionally, investors have been seeking more liquid assets amid the prevailing uncertainty. Since the outbreak of the U.S.-Israeli war on Iran on February 28, gold has lost more than 11% of its value in spot trading. Ironically, the specter of higher interest rates is weighing on gold’s status as a safe haven.
The oil barrel and the tension in the Strait of Hormuz
In the energy market, oil prices surged past $100 a barrel amid reports that the US Navy is preparing to impose a naval blockade and take full control of the Strait of Hormuz. This move to restrict Iranian oil shipments comes after negotiations between Washington and Tehran reached an impasse. The Iranian Revolutionary Guard responded with a strongly worded warning, asserting that any military vessels approaching the strait would be considered in violation of ceasefire agreements and would be dealt with firmly and decisively, placing the world’s most important energy waterway on the brink of a potential explosion.
Inflation dashes hopes of an interest rate cut
The sharp rise in oil prices has exacerbated fears of a new wave of global inflation. Traders now believe the chances of the Federal Reserve (the US central bank) cutting interest rates this year are very slim.
While pre-war forecasts anticipated two rate cuts, experts now believe that continued high energy costs will limit the Fed’s ability to ease monetary policy. This is negatively impacting gold, which does not offer a yield.
Other precious metals
Other precious metals followed suit, with silver falling 1.9% to $74.45 an ounce and platinum dropping 1.3% to $2,019.35.
Palladium bucked the trend, rising 0.7% to $1,531.50, supported by concerns about industrial supply shortages. Markets remain on tenterhooks, awaiting developments in the Strait of Hormuz. As a result, the language of force has become the primary driver of the global economy.
