Gold prices fall 3% amid rising tensions in the Middle East

Gold prices fell 3% on Monday after US President Donald Trump announced the reimposition of a naval blockade on Iran, sparking a recovery in oil markets, reigniting inflation concerns, and increasing the likelihood that US interest rates would remain elevated for longer. Spot gold dropped 3% to $3,996.76 per ounce by 17:40 GMT, marking its lowest level since July 1. US August gold futures fell 2.6% to $4,005.70.

Fuad Razzaqzada, market analyst at Forex.com, said, “Oil prices are rising due to the conflict in the Middle East, and there is a possibility of tighter monetary policy from the Federal Reserve. This is bad news for zero-yield assets like gold.”

He added, “If oil prices continue to rise, gold prices could collapse and initially head toward the $3,800 level, and possibly to $3,500 over time if selling pressure accelerates.”

Trump announced on Monday that the United States would reimpose a naval blockade on Iran and impose a 20% fee on all goods shipped through the Strait of Hormuz, following Tehran’s announcement that it had closed the strait. Oil futures jumped 5% on the news.

Rising oil prices could fuel inflation by increasing energy and transportation costs across all sectors of the economy, potentially prompting central banks to keep interest rates at higher levels for longer or even raise them further to curb price pressures.

Kevin Warsh, chairman of the Federal Reserve Board, is expected to deliver his first monetary policy testimony before Congress on Tuesday. Market participants will monitor his comments for clues about interest rate expectations.

This week also sees the release of several key US economic data points, including the Consumer Price Index, Producer Price Index, June retail sales data, and weekly jobless claims. In other precious metals, spot silver fell 3.8% to $57.55 per ounce, platinum dropped 1.7% to $1,599.47, and palladium declined 2.1% to $1,249.70.