By Yihui Xie
Gold declined on mounting inflation concerns, after US-Iran peace talks ended without resolution and American plans to blockade the Strait of Hormuz deepened a global energy-supply shock.
Bullion fell as much as 2.2 per cent to dip below $4,650 an ounce in early trading, before paring losses. The US military said it will begin the blockade at 10 a.m. Eastern Time on Monday after weekend negotiations with Iran failed to secure a deal to turn a fragile ceasefire into a lasting peace after six weeks of war in the West Asia.
Oil and natural gas prices surged, with President Donald Trump also saying the US will interdict any vessel that has paid a toll to Iran for safe passage through Hormuz, the maritime chokepoint that links the Persian Gulf to global markets. Before the war, a fifth of the world’s crude and liquefied natural gas passed through the strait.
“Events over the weekend clearly put the fragile ceasefire at risk and likely prolong the conflict,” said Paras Gupta, head of discretionary portfolio management in Asia at Union Bancaire Privée. Price movements in gold were “less exaggerated” than earlier in the war, he added, although “the real test” will come when London wakes up later on Monday.
Equity futures slid and a gauge of the dollar rose as much as 0.5 per cent, a headwind for gold that’s priced in the US currency. The spike in energy prices also raised inflationary risks, making it more likely that central banks will delay cutting interest rates or even hike them. This is a negative for non-yielding bullion, which benefits when borrowing costs are lower.
In an early reading of the war’s impact on the US economy, March inflation climbed by the most in nearly four years, with a record increase in gasoline prices responsible for nearly three-quarters of the monthly advance, according to data from the Bureau of Labor Statistics released Friday.
Bullion has fallen nearly 11 per cent since the conflict began at the end of February, with a liquidity squeeze in the early weeks pushing investors to offload the metal to cover losses elsewhere. More recently, gold has clawed back some losses as a growing focus on slowing economic growth countered the risk of higher inflation.
This shift should continue to provide some support for bullion despite the decline early on Monday, said Daniel Hynes, senior commodity strategist at ANZ Banking Group Ltd. “I suspect gold could threaten last week’s low of $4,650 but ultimately hold at these levels,” he said.
Spot gold fell 0.6 per cent to $4,723.55 an ounce at 10:01 a.m. in Singapore. Silver slid 2 per cent to $74.36 an ounce. Platinum also declined, while palladium edged higher. The Bloomberg Dollar Spot Index was up 0.3 per cent.