Gold Drops on US Blockade of Hormuz

Gold dropped about 2% to below $4,700 an ounce on Monday, reversing gains from last week as US plans to blockade the Strait of Hormuz following failed weekend talks with Iran heightened concerns over a worsening global energy crisis. The restrictions will apply only to vessels entering or leaving Iranian ports starting at 10 a.m. Eastern Time. Negotiations in Pakistan failed to produce an agreement, with the US accusing Tehran of refusing to curb its nuclear ambitions, while Iran reportedly sought control of the strait, war reparations, a regional ceasefire, and access to frozen overseas assets. The effective shutdown of the critical shipping route has driven energy prices sharply higher and intensified inflation risks, reinforcing expectations that central banks may delay rate cuts or even tighten policy further. This dynamic has weighed on gold, leaving it down more than 10% since the conflict began.

Gold edged up to $4,780 per ounce on Friday, heading for a third straight weekly gain, buoyed by a weaker dollar and investor focus on US-Iran diplomatic talks in Islamabad this weekend. The metal gained 2% this week as expectations of earlier US rate cuts boosted non-yielding assets, while a two-week ceasefire eased oil prices and inflation concerns. However, the fragile truce showed signs of strain on Friday, as Israeli strikes on Lebanon and ongoing disruptions in the Strait of Hormuz threatened to complicate negotiations. Meanwhile, the latest US CPI report, the first since the conflict began, revealed inflation climbing to 3.3%, the highest since May 2024, with the monthly index surging 0.9%, the steepest rise since mid-2022. Markets now price in a 30% chance of at least a 25-basis-point rate cut in December. In physical markets, gold demand in India ticked up ahead of a key festival, while premiums in China narrowed as retail demand softened.

Gold steadied above $4,700 per ounce on Friday and remained on course for a third consecutive weekly gain, as the US-Iran ceasefire triggered a sharp decline in oil prices and eased concerns over renewed inflation and potential interest rate hikes. The metal also drew support from a softer dollar, which had emerged as the leading safe-haven asset during the crisis. Investors turned their attention to upcoming diplomatic talks in Islamabad this weekend, where Vice President JD Vance is set to head a US delegation in meetings with Iranian officials. Meanwhile, Israeli Prime Minister Benjamin Netanyahu reiterated that continued operations in Lebanon are not covered by the US-Iran ceasefire agreement, even as Washington plans to host further discussions next week involving Israel and Lebanon to advance broader truce efforts. US President Donald Trump also warned Iran over imposing transit fees in Hormuz, criticizing its handling of oil shipments.