Gold came under pressure from persistently high energy costs and rising expectations of further Federal Reserve rate hikes. Spot gold fell as much as 1.8%, slipping below $4,206 an ounce, after losing more than 2% the previous week. Markets are reassessing how elevated oil prices could affect inflation, the rate outlook and demand for bullion.
Strait of Hormuz reopening talks remain stalled
The decline came as negotiations over reopening the Strait of Hormuz showed no breakthrough. Iran said it would not ease its conditions for restoring access to the shipping route. The US had rejected an Iranian proposal for a seven-day reopening, while the US president said talks were expected to resume this week.
The strait is a key route for Middle Eastern crude shipments. The prospects for stable passage shape expectations for oil supply and transport costs. With negotiations at a standstill, oil prices have remained supported, putting the inflationary impact of energy costs back in focus for traders.
Brent crude is up more than 70% this year
Brent crude has gained more than 70% since the start of the year, as the US-Iran conflict entered its eighth month. Higher oil prices raise fuel and transport costs and can feed through energy and related commodities into broader consumer prices.
For monetary policy, sustained energy-price increases could make it harder for inflation to ease. Markets have consequently increased their bets on further Fed rate hikes. Higher rate expectations typically raise the opportunity cost of holding non-yielding gold, weighing on its near-term performance.
Rates and the dollar weigh on bullion
Gold pays no interest. When investors expect US rates to stay elevated for longer, or to rise further, bullion becomes less attractive relative to interest-bearing assets. Recent weakness suggests that rate concerns are partly offsetting demand for gold as a haven amid geopolitical tensions.
The latest decline extends a broader move rather than reflecting a single session: gold lost more than 2% the previous week before briefly falling below $4,206 an ounce. The market is repricing the potential policy response to the energy shock. If oil stays elevated, the link between inflation pressure and rate expectations will remain a key factor for precious metals.
Traders are watching whether talks over the Strait of Hormuz resume this week, whether Iran changes its reopening conditions and whether crude prices continue to rise. Those developments will shape expectations for energy supply and could affect views on the Fed's rate path.