(May 26): Gold declined as US strikes in the Strait of Hormuz tempered optimism over the progress of talks to reopen the critical waterway, keeping inflation risks elevated.
Bullion fell as much as 1.1% to trade just above US$4,500 an ounce on concerns the strikes may derail peace talks. US forces hit missile launch sites in Iran and boats trying to place mines, US Central Command said in a statement. The strikes were defensive and intended “to protect our troops from threats posed by Iranian forces,” spokesman Captain Tim Hawkins said.
Brent crude advanced more than 3% as the strikes raised the risk of prolonged supply disruptions due to the effective closure of the waterway.
The developments come after US President Donald Trump on Monday said talks with Iran over an interim deal to extend their ceasefire and ease restrictions on passage through Hormuz were “proceeding nicely”.
Bullion has slumped around 14% since the conflict erupted in late February. Traders ramped up rate-hike bets as the war sent energy prices soaring and fanned inflation concerns. Higher borrowing costs weigh on the yellow metal, which doesn’t pay interest.
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A sustained rebound in gold “requires breaking away from the correlation with risk assets,” said John Reade, chief strategist at the producer-funded World Gold Council. Gold has a better chance of recovering toward the end of the year even if the conflict ends now, as it will take time for the energy balance to be restored, he added.
Spot gold was down 1% at US$4,523.43 an ounce at 10.08am in London. Silver was 2.6% lower at US$76.05. Platinum and palladium also declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, was 0.1% higher after retreating 0.3% the day before.
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