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(Bloomberg) — Gold fell after vessels came under fire in the Strait of Hormuz at the weekend, renewing fears of energy-supply disruptions that have stoked inflation concerns during more than seven weeks of war in the Middle East.
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Bullion dropped to near $4,780 an ounce in early trading, wiping out much of last week’s 1.7% gain. President Donald Trump said the US Navy fired upon and seized an Iranian-flagged cargo ship, while Tehran warned that ships approaching the strait would be treated as violating a ceasefire. Several vessels were forced to abandon crossings only hours after the Islamic Republic had said the waterway was open.
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The latest incidents have jeopardized prospects for potential peace talks in Islamabad, with Trump saying he saw a chance for a deal while also renewing threats to destroy Iranian power plants and bridges. Iran said there was no “clear prospect” for an agreement.
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Oil soared on Monday, having slumped in the previous session after Iran declared Hormuz “completely open”. US equity futures slipped and a gauge of the dollar rose as much as 0.3%, pressuring gold that’s priced in the US currency. Failure to achieve a lasting diplomatic agreement to end the war has driven market volatility in recent weeks, with the latest episode again underscoring the fragility of a ceasefire that’s due to end Tuesday.
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The protracted conflict has triggered an unprecedented energy-supply shock that has intensified inflationary pressures, making central banks more likely to hold interest rates steady or even raise them – a headwind for non-yielding bullion. Gold has lost around 9% since the war began at the end of February.
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Spot gold fell 1% to $4,780.89 an ounce at 6:57 a.m. in Singapore. Silver slid 1.6% to $79.59 an ounce, with platinum and palladium also down. The Bloomberg Dollar Spot Index was up 0.2%.
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