(Bloomberg) — Gold edged down amid mounting inflation concerns after President Donald Trump’s order to blockade the Strait of Hormuz deepened a global energy-supply shock.
Bullion fell as much as 2.2% to trade below $4,650 an ounce, before paring much of the loss. The 10 a.m. Eastern Time deadline passed for the US military to begin the blockade, after weekend negotiations with Iran failed to secure a deal to turn a fragile ceasefire into a lasting peace. It wasn’t immediately clear that the US had mobilized to execute the blockade.
Oil and natural gas prices rallied, 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.
The jump in energy prices and the US consumer price index are shifting investors’ focus back to inflation. Bond yields around the world climbed as the surge in oil prices added to expectations of tighter monetary policy. In the US, money markets are pricing in less than a one-in-five chance of a rate cut by December. This is a negative for non-yielding bullion, which benefits from lower borrowing costs.
“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. But he added that price movements in gold were “less exaggerated” than earlier in the war.
The Swiss private bank is gradually adding bullion to discretionary client portfolios after cutting exposure to 3% from around 10%.
Bullion has fallen about 10% 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 interest rates.
This shift should continue to provide some support for bullion despite the decline 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% to $4,719.17 an ounce by 10:18 a.m. in New York. Silver slid 2.4% to $74.07 an ounce. Platinum declined, while palladium rose.
–With assistance from Jack Ryan and Yvonne Yue Li.
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