Gold drops 3% as tensions rise in the Middle East

Gold fell three percent on Monday after U.S. President Donald Trump announced the reimposition of a naval blockade on Iran, sparking a recovery in oil markets, rekindling inflation concerns, and increasing the likelihood that U.S. interest rates would remain elevated for longer. By 17:40 GMT, spot gold had dropped three percent to $3,996.76 per ounce, its lowest level since July 1.

“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,” said Fuad Raza Zada, market analyst at Forex.com.

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

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.

Federal Reserve Chair Jerome Powell is expected to deliver his first monetary policy testimony before Congress on Tuesday. Market participants will scrutinize his comments for clues about interest rate expectations.

This week also sees the release of several key U.S. 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 percent to $57.55 per ounce, platinum dropped 1.7 percent to $1,599.47, and palladium declined 2.1 percent to $1,249.70.