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(Bloomberg) — Gold declined as renewed clashes in the Middle East cast doubt over a US-Iran peace deal, keeping energy prices elevated and inflation concerns high.
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Bullion fell as much as 1.4% to below $4,430 an ounce, reaching the lowest in almost a week.
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Following days of rising tension, the US and Iran clashed again overnight, with Kuwait and Bahrain caught in the crossfire of one the most serious flare-ups since a ceasefire went into effect in early April. Elevated oil prices, which advanced for a third consecutive day, and a resilient US jobs market added to expectations that the Federal Reserve will need to raise interest rates at its June meeting. Higher rates are typically negative for gold as it pays no interest.
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“The Middle East remains a key source of uncertainty, and the flow of headlines continues to influence short-term market sentiment,” said Ahmad Assiri, a market strategist at Pepperstone Group Ltd. “The repeated cycle of re-escalation and de-escalation has created a challenging environment for investors attempting to assess the true level of risk facing gold.”
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Bullion has moved largely in an inverse relationship with oil since hostilities broke out in late February. It fell sharply in the early days of the conflict and remains about 15% below its immediate pre-war level, though it has traded in a narrow range for the last few weeks.
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The metal has “maintained a pattern of lower highs, suggesting underlying sentiment remains fragile,” Assiri said.
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The protracted disruption to energy flows via the Strait of Hormuz has raised concerns over global inflation, making central banks more likely to keep interest rates steady or even raise them — a headwind for precious metals, which don’t pay interest.
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Spot gold slipped 1.1% to $4,439.70 an ounce by 11:41 a.m. in New York. Silver dropped 2.3% to $73.3623 an ounce. Platinum and palladium also fell. The Bloomberg Dollar Spot Index rose 0.2%.
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—With assistance from Jack Ryan and Yvonne Yue Li.
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English (US)