- Gold fell as much as 0.9% to around $4,557/oz, extending a 2.4% decline over the prior two sessions, as the Strait of Hormuz remains closed indefinitely.
- Rising energy prices are fanning inflation, reducing the likelihood of rate cuts from the Fed, ECB, Bank of England, and Bank of Canada — all meeting this week.
- The Bank of Japan held rates at 0.75% in a split vote Tuesday, signaling a possible June hike that further pressures risk assets.
- Gold has lost nearly 14% since the U.S.-Iran conflict began in late February, while crude oil has soared — a dramatic reversal of the typical war-driven safe-haven bid.
What Happened?
Gold extended its losing streak to three sessions Tuesday, dipping to around $4,557 an ounce as the indefinite closure of the Strait of Hormuz continued to amplify global inflation risks. Spot gold settled around $4,574, with silver, platinum, and palladium also declining. Traders are focused on whether Iran will submit a revised diplomatic proposal in the coming days — a Hormuz reopening would be the biggest single upside catalyst for the metals complex. For now, the blockade narrative is running the other way: higher energy costs mean stickier inflation, and stickier inflation means central banks hold rates higher for longer.
Why It Matters?
Gold’s 14% decline since the Iran conflict began is counterintuitive at first glance — war typically sends investors rushing to safe-haven assets. But this conflict has created an unusual dynamic: the oil supply shock is driving inflation expectations sharply higher, raising real interest rates and the opportunity cost of holding non-yielding bullion. Rising bond yields globally are compounding the pressure. Saxo Bank’s Ole Hansen notes that a technical break below support at $4,650 has triggered additional selling, and the market is now in a delicate spot — waiting for either a diplomatic breakthrough or further central bank hawkishness to set direction.
What’s Next?
The Federal Reserve is widely expected to hold rates unchanged at its Wednesday meeting, but attention will center on whether Chair Powell signals any shift in the rate outlook given sustained energy-driven inflation. Investors will also watch whether Powell remains on the Fed board after his term as chair expires. A reopening of the Strait of Hormuz — if Iran presents a credible revised proposal through mediators — would be the fastest path to gold recovery, as it would relieve energy price pressure and revive rate-cut expectations. Until then, the path of least resistance for gold remains lower.
Source: Bloomberg
