Gold prices dropped on Monday as oil prices increased due to a lack of progress in the U.S.-Iran peace talks, raising concerns that greater inflation would prolong higher interest rates. The 10-week conflict, which has caused extensive damage in Iran and Lebanon, halted maritime traffic in the Strait of Hormuz, and increased global energy prices, is expected to end soon, but US President Donald Trump rejected Iran’s response to a U.S. proposal for peace talks on Sunday.
According to Tim Waterer, chief market analyst at KCM Trade, “we’re basically witnessing an unwinding of hopes for an imminent (peace) deal, and gold is feeling the pinch from the renewed rise in crude prices.” Because the Strait of Hormuz was mostly closed and the world’s energy supplies were limited, oil prices surged.
Growing crude oil prices run the risk of driving up inflation and raising the likelihood of higher interest rates. Although gold has historically been viewed as a hedge against inflation, the non-yielding asset is sometimes negatively impacted by high interest rates.
According to a semi-annual Federal Reserve study released on Friday, the ongoing war with Iran and its impact on oil prices and supplies have risen to the top of the list of worries for financial stability.
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