Gold Prices Tumbles as Trump Orders Hormuz Blockade — Here’s What’s Driving the Selloff

TLDR

• Gold fell as much as 2.2%, dipping below $4,650 an ounce on Monday
• US-Iran ceasefire talks in Pakistan ended without a deal over the weekend
• Trump ordered a naval blockade of the Strait of Hormuz starting 10 a.m. ET
• US CPI rose 3.3% year-on-year in March, driven largely by energy prices
• Rate cut bets have been pushed back at least 12 months, pressuring gold

Gold prices dropped sharply on Monday after US-Iran peace talks collapsed and the United States announced a naval blockade of the Strait of Hormuz.

Spot gold fell as much as 2.2%, briefly dipping below $4,650 an ounce. It later recovered slightly, trading at $4,729.02 an ounce as of early afternoon in Singapore.

Gold futures also declined, falling 0.9% to $4,743.20 per ounce.

Weekend negotiations held in Pakistan between Washington and Tehran ended without progress. The two sides clashed over Iran’s nuclear activities, control of the Strait of Hormuz, and Iran’s backing of militant groups in the region.

President Donald Trump then ordered a naval blockade of the strait, set to begin at 10 a.m. Eastern Time on Monday. Trump also said the US would intercept any vessel that had paid Iran a toll for safe passage through the waterway.

Before the war, roughly one-fifth of the world’s crude oil and liquefied natural gas passed through the Strait of Hormuz.

Why Inflation Is Hurting Gold

Oil and natural gas prices surged following the blockade announcement. That pushed inflation expectations higher, reducing the chances of near-term interest rate cuts by the Federal Reserve.

Gold does not pay interest, so it tends to perform better when borrowing costs are low. Rising rate expectations make it less attractive to investors.

US CPI data released Friday added to the pressure. Inflation rose 3.3% year-on-year in March, up sharply from 2.4% in February. A record jump in gasoline prices made up nearly three-quarters of the monthly increase, according to the Bureau of Labor Statistics.

CME FedWatch data showed traders have now pushed back rate cut expectations by at least 12 months.

The dollar index rose around 0.4% on Monday, also weighing on gold. Since gold is priced in dollars, a stronger dollar makes it more expensive for overseas buyers.

Silver fell nearly 2% to $74.39 an ounce. Platinum was little changed, and palladium edged higher.

Gold’s Performance Since the War Began

Gold has fallen about 10% since the Middle East conflict began at the end of February. In the early weeks, a liquidity squeeze pushed investors to sell gold to cover losses in other markets.

More recently, gold clawed back some ground as concerns about slower economic growth provided some support.

Analysts at ANZ Banking Group said gold could test the recent low of $4,650 but may hold at those levels. Swiss private bank Union Bancaire Privée cut its gold exposure from around 10% to 3%, but said it is now gradually adding bullion back to client portfolios.

US producer price index data is due later this week.

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