Gold Hits Lowest since Late March, Hormuz Escalation Raises Inflation Concerns
Gold prices weakened on Monday (May 4th), falling to their lowest level since late March, as escalating tensions in the Middle East rekindled inflation concerns. Markets believe the surge in geopolitical risks has the potential to prolong the period of high energy prices, which could limit the scope for monetary policy easing.
According to a report by Iran's Fars news agency, two missiles struck a US Navy frigate in the Strait of Hormuz, which Iran called a violation of "traffic and shipping security" around Jask Island. At the same time, the Iranian Revolutionary Guard Corps (IRGC) Navy released a map marking areas of the Strait of Hormuz under Iranian military control.
The conflict, now entering its tenth week, has driven up energy prices sharply, heightening inflation risks and fueling concerns that central banks will keep interest rates high for longer, or even consider further tightening. This transmission channel pressures gold as higher interest rates increase the opportunity cost of holding non-yielding assets.
Since the conflict began, gold has weakened significantly, indicating pressure from a combination of rising interest rate expectations and liquidity needs. On the medium-term fundamental front, the World Gold Council reported that central banks increased gold reserves in the first quarter, providing structural support, although not enough to offset short-term pressures from yield movements and energy inflation.
The market will monitor security developments in the Strait of Hormuz, the US-Iran military and diplomatic response, and changes in interest rate expectations reflected in yield movements, as these factors will be key determinants of gold's direction in the near term.
Source: Newsmaker.id
