Gold prices lost more than 2% in European markets on Monday at the start of the week’s trading, continuing their losses for the second consecutive day, moving away from a three-week high, as correction and profit-taking operations continue, in addition to pressure from the rise of the U.S. dollar after the failure of peace talks between the United States and Iran in Pakistan.
With the escalation of U.S. threats to impose a naval blockade on the Strait of Hormuz and Iranian ports, global oil prices jumped by more than 10%, in a development that brings concerns of accelerating global inflation back to the forefront and increases pressure on the Federal Reserve to raise interest rates in the near term.
Price overview
• Gold prices today: Gold metal prices fell by 2.2% to ($4,644.52), from the opening level of trading at ($4,749.45), and recorded a high of ($4,749.45).
• Upon price settlement on Friday, gold prices lost 0.4%, in the first loss within the last four days, due to correction and profit-taking operations from a three-week high at $4,857.56 per ounce.
• Last week, gold prices achieved an increase of 1.55%, in the second consecutive weekly gain, thanks to the decline of the U.S. dollar after the announcement of the two-week truce in the Iranian war.
The U.S. Dollar
The dollar index rose on Monday at the start of the week’s trading by 0.5%, beginning a broad recovery from its lowest levels in a month, reflecting the rise in the levels of the American currency against a basket of global currencies.
As we know, the rise in the levels of the American currency makes gold bullion priced in U.S. dollars less attractive to buyers holding other currencies.
Aside from buying operations from low levels, U.S. dollar levels rose due to fears of renewed war in the Middle East region after the collapse of peace talks between the United States and Iran in Pakistan.
Saul Kavonic, an analyst at MST Marquee, said: The market has now largely returned to its status before the ceasefire.
Updates on the Iranian war
• The talks between the United States and Iran in Islamabad ended in a deadlock.
• Washington’s insistence on a complete dismantling of what remains of uranium enrichment facilities in Iran.
• Tehran’s demand for an immediate lifting of all economic sanctions before extending the truce.
• Trump says that the United States will impose a blockade on the Strait of Hormuz after the failure of peace talks with Iran.
• Trump ordered the U.S. Navy to impose a blockade on the Strait of Hormuz starting at 10:00 AM U.S. Eastern Time on Monday.
• Trump believes that Iran will continue the dialogue; Tehran seeks a “balanced and fair agreement.”
• Iran warns of a harsh response to the blockade and accuses the United States of being intransigent in negotiations.
• The Wall Street Journal reported that Trump and his advisors are considering launching limited strikes on Iran.
Global oil prices
Oil prices jumped by more than 10% on Monday after the failure of U.S.-Iranian talks to reach an agreement, leaving the fragile ceasefire hanging and continuing to choke energy exports from the Middle East.
Undoubtedly, the rise in global oil prices renews fears of accelerating inflation, which may push global central banks, especially the Federal Reserve, to raise interest rates in the near term, in a sharp shift from pre-war expectations of cutting or fixing U.S. interest rates for a long period.
U.S. interest rates
• After the rise in oil prices and according to the “FedWatch” tool of the CME Group: pricing of the probability of keeping U.S. interest rates unchanged at the April meeting declined from 99% to 96%, and pricing of the probability of raising interest rates by about 25 basis points rose from 1% to 4%.
• In order to re-price those probabilities, investors are closely following the release of more economic data from the United States.
Gold performance expectations
Tim Waterer, chief market analyst at KCM Trade, said: Optimism regarding the ceasefire faded after the failure of peace talks, and the resulting rise in dollar and oil prices led to gold retreating again.
Waterer added: Once oil prices exceed $100, eyes quickly turn to the possibility of central banks raising interest rates to curb inflation, and these expectations regarding interest rates are what weaken gold’s performance.
SPDR Fund
Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, remained largely unchanged on Friday, leaving the total at 1,052.42 metric tons, which is the lowest level in about a week.
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