Gold falls as US-Iran maritime stand off heightens inflation risk

[SINGAPORE] Gold declined as the US extension of a ceasefire with Iran left global markets grappling with a blockade of the Strait of Hormuz, impacting energy security and keeping inflation risks high.

Bullion fell as much as 1 per cent to below US$4,700 an ounce, wiping out a gain in the previous session. US President Donald Trump said the truce agreed Apr 7 would stay in place indefinitely while Washington waits for Iran to submit a new peace proposal, though Teheran says it has no plans to take part in negotiations imminently.

Trump’s ceasefire extension represents a retreat from threats to resume bombing of Iran in the event a deal couldn’t be reached by a Wednesday (Apr 22) deadline. But the two sides remain locked in a battle to control Hormuz, a vital waterway for energy, to gain leverage in possible truce talks. The US maintained a naval blockade on ships moving to and from the Islamic Republic, while Iranian gunboats fired on commercial vessels.

Oil rose for a fourth day, while a gauge of the US dollar edged higher, pressuring gold that’s priced in the US currency. Now in its eighth week, the conflict has triggered an unprecedented energy-supply shock that has heightened inflation risks, making central banks more likely to keep rates steady for longer, or even hike them. This has put pressure on non-yielding bullion, which has retreated about 11 per cent since the war began.

The precious metals market is “going to remain cautious and volatile,” said Rhona O’Connell, head of market analysis for EMEA and Asia at trader StoneX Group. “Professional trading houses remain reluctant to commit large positions in the face of such febrile geopolitical conditions.”

Spot gold fell 0.8 per cent to US$4,699.28 an ounce at 10.56 am Singapore time. Silver slid 2.3 per cent to US$75.92 an ounce. Platinum and palladium also declined. BLOOMBERG