Investing.com– Gold prices fell sharply in Asian trade on Monday, as concerns over inflation and high interest rates sapped safe haven demand for bullion even as the U.S.-Israel war on Iran raged on.
Monday’s losses saw largely wipe out all of its gains for the year.
Developments over the weekend– specifically U.S. President Donald Trump’s issuing of a 48-hour deadline for Iran to reopen the Strait of Hormuz– pointed to a potential escalation in the conflict, especially as Tehran warned of retaliation.
Spot gold fell 3% to $4,358.10 an ounce by 01:24 ET (05:24 GMT), while gold futures fell 4.7% to $4,391.34/oz. Spot prices had fallen as low as $4,320.19/oz earlier in the session.
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Other precious metals also weakened on Monday. Spot silver slid 2.7% to $65.9005/oz, while spot platinum fell 3.9% to $1,850.81/oz.
Trump issues 48-hr deadline on Iran
Trump over the weekend said Iran had 48 hours to reopen the Strait of Hormuz, or else the U.S. would “obliterate” critical energy infrastructure in the country.
Iran responded by threatening to attack key energy and water infrastructure across the Middle East, and also warned it would completely close the strait.
Reports showed hostilities between Iran and Israel continued over the weekend, as the conflict now entered its fourth consecutive week.
Trump’s deadline, especially if Washington makes good on its threat, could mark a dire escalation in the war, especially if Iran retaliates.
But gold has so far largely failed to capitalize on heightened geopolitical tensions stemming from the Iran war.
Gold underperforms as Iran war drives inflation, rate fears
Concerns over the inflationary impact of the Iran war were a major weight on gold prices in the last three weeks, dragging the yellow metal well below key levels and limiting the potential for recovery.
Markets feared that a prolonged conflict will drive up global inflation through energy prices, in turn eliciting a much more hawkish outlook from major central banks.
This was seen last week with both the European Central Bank and the Bank of England signaling potential rate hikes this year.
The Federal Reserve did not signal any rate hikes. But markets were seen steadily pricing out expectations for rate cuts by the central bank this year.
“The market is trading less on geopolitical hedging flows and more on fears that stickier inflation could prompt a more hawkish central bank stance,” OCBC analysts said in a note.
But they added that the long-term drivers of gold still remained in place, and that prices were likely to pick up in the near-term.