Gold drops below US$4,000 as US-Iran tensions raise inflation risk

[SINGAPORE] Gold extended a decline below US$4,000 an ounce as the US and Iran sent conflicting signals ahead of fresh talks to end the war that’s fuelled global inflationary pressures.

Bullion fell as much as 1.8 per cent to US$3,943, the lowest intraday level since November, after giving up almost 2 per cent in the previous session. Washington said negotiations with Teheran are due to begin Tuesday in Doha, while Iran’s foreign ministry said on Telegram that it would send a delegation of experts but ruled out direct talks.

Separately, Iranian Deputy Foreign Minister Kazem Gharibabadi said Teheran intended to continue with plans to oversee traffic through the Strait of Hormuz, a move opposed by the US, Europe and Gulf Arab nations, highlighting differences over the future management of the vital waterway.

Gold has lost around 25 per cent since the war began in late February, breaking through key technical levels including the 200-day moving average that maps long-term momentum. Though oil prices have retreated after spiking earlier in the war, expectations remain that central banks will keep interest rates higher for longer. This creates headwinds for non-yielding precious metals.

A stronger US dollar has also added pressure to gold that’s priced in the US currency, making the metal more expensive for many buyers. A gauge of the greenback has risen more than 2 per cent this month.

“Although easing geopolitical tensions and lower oil prices could help cool inflation risks, the market is clearly placing more weight on renewed US rate-hike expectations and a stronger US dollar into the second half – both of which raise the opportunity cost of holding gold,” said Hebe Chen, an analyst at Vantage Markets in Melbourne.

“Technically, the selling pressure has also accelerated after prices broke below recent key support, turning what started as profit-taking into a deeper short-term momentum unwind,” she said.

The latest developments in the Middle East come as the US Supreme Court ruled that Federal Reserve governor Lisa Cook can stay in her job while she fights President Donald Trump’s bid to oust her over unproven mortgage fraud allegations.

The ruling reinforces the autonomy of the US central bank, which is under pressure to lower rates at a time when some Fed officials have signalled they may need to raise borrowing costs to contain inflation. The latest US inflation data released last week, while high, was within analyst estimates.

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Spot gold was down 1.3 per cent at US$3,962.80 an ounce at 10.40 am in Singapore. Silver fell 1.7 per cent to US$57.28 an ounce. Platinum and palladium also declined. The Bloomberg US dollar Spot Index gained 0.2 per cent after falling for the previous three sessions. BLOOMBERG