Gold slips as oil shock clouds peace hopes

Gold prices fell on Monday as a fresh flare-up in waters around the Strait of Hormuz rattled energy markets, pushed up the dollar and Treasury yields, and raised doubts over diplomatic efforts aimed at halting the war.

Bullion, which often draws support in periods of geopolitical strain, came under pressure as traders focused instead on the inflationary impact of another oil-supply shock. The move highlighted a familiar tension in global markets: conflict can lift demand for safe havens, but it can also drive up energy prices sharply enough to strengthen expectations that interest rates will stay higher for longer.

Spot gold was down by about 0.7 per cent during trading, while US gold futures fell by more than 1 per cent, according to market pricing on Monday. The retreat followed a weekend escalation involving the seizure of an Iranian-flagged cargo ship and renewed disruption to shipping through one of the world’s most important oil chokepoints. Oil prices jumped more than 5 per cent as traders assessed the risk of tighter supply and wider regional spillover.

The latest market reaction showed how quickly the balance has shifted. Gold had found support earlier this month when hopes grew that diplomatic contacts could ease the conflict and reduce the risk of an energy-driven inflation pulse. That support weakened after the weekend developments cast doubt on the next phase of talks. Tehran signalled it would not take part in a second round of US-led negotiations after the seizure, while Washington hardened its tone, leaving investors to price in a longer period of instability rather than an orderly move towards de-escalation.

What hurt gold most was not the conflict alone, but the market’s response to it. When oil rises sharply, investors often begin to anticipate stickier inflation, especially if supply disruptions appear prolonged. That can push up Treasury yields and bolster the dollar, both of which tend to weigh on bullion. Gold does not offer a yield, so it becomes less attractive when returns on bonds rise. A stronger dollar also makes gold costlier for buyers using other currencies, which can curb demand outside the United States.

The Strait of Hormuz remains central to that calculation. Roughly a fifth of global oil flows through the waterway, making any interruption there a direct threat to energy prices, shipping costs and inflation expectations. Traders had been looking for signs that transit could return to something close to normal after earlier ceasefire efforts, but the events over the weekend unsettled that view. China, which has called for restraint, warned that the situation in the Strait was sensitive and complex and urged all sides to avoid further escalation.

Analysts say the market is now treating gold less as a straightforward refuge and more as an asset caught between two opposing forces. On one side is geopolitical anxiety, which would normally favour bullion. On the other is the prospect that any sustained rise in oil could entrench inflation, keep central banks cautious and support the dollar. For now, the second force is proving stronger.

That shift is also visible in broader market behaviour. Oil and gas prices surged at the start of the week, while equities turned more defensive and bond markets reflected concern that energy costs could feed into consumer prices. Earlier optimism that financial markets might begin looking through the war has faded as each new disruption restores the threat of a wider regional and economic shock.

Physical demand trends have added another layer of pressure. Elevated prices have already damped jewellery buying in major consumer markets, particularly in Asia, where buyers tend to step back when bullion trades at stretched levels. That means gold is no longer receiving the same cushion from retail demand that might once have softened a sell-off triggered by macroeconomic factors. Reuters market reporting said high prices had dulled festival-period purchases in India, underscoring how sensitive end-user demand remains when bullion trades near historic highs.