Gold falls as renewed Hormuz disruption stokes inflation concern

[SINGAPORE] Gold fell after vessels came under fire in the Strait of Hormuz at the weekend, renewing fears of energy-supply disruptions that have stoked inflation concerns during more than seven weeks of war in the Middle East.

Bullion dropped to near US$4,780 an ounce in early trading, wiping out much of last week’s 1.7 per cent gain. US President Donald Trump said that the US Navy fired upon and seized an Iranian-flagged cargo ship, while Teheran warned that ships approaching the strait would be treated as violating a ceasefire. Several vessels were forced to abandon crossings only hours after the Islamic Republic had said the waterway was open.

The latest incidents have jeopardised prospects for potential peace talks in Islamabad, with Trump saying he saw a chance for a deal while also renewing threats to destroy Iranian power plants and bridges. Iran said that there was no “clear prospect” for an agreement.

Oil soared on Monday (Apr 20), having slumped in the previous session after Iran declared Hormuz “completely open”. US equity futures slipped and a gauge of the US dollar rose as much as 0.3 per cent, pressuring gold that’s priced in the US currency. Failure to achieve a lasting diplomatic agreement to end the war has driven market volatility in recent weeks, with the latest episode again underscoring the fragility of a ceasefire that’s due to end on Tuesday.

The protracted conflict has triggered an unprecedented energy-supply shock that has intensified inflationary pressures, making central banks more likely to hold interest rates steady or even raise them – a headwind for non-yielding bullion. Gold has lost around 9 per cent since the war began at the end of February.

Spot gold fell 1 per cent to US$4,780.89 an ounce at 6:57 a.m. in Singapore. Silver slid 1.6 per cent to US$79.59 an ounce, with platinum and palladium also down. The Bloomberg Dollar Spot Index was up 0.2 per cent. BLOOMBERG