Gold prices fall to 4-month low: What's the reason?
What's the story
Gold prices plummeted by over 3% today, hitting a four-month low. The decline was mainly due to rising tensions in the Middle East, which raised inflation fears and increased expectations of higher global interest rates. Spot gold fell by 3.3% to $4,340.09 per ounce, extending losses for the ninth consecutive session.
Market impact
Other precious metals also took a hit
US gold futures for April delivery witnessed a major fall, dropping 5% to $4,347. Other precious metals such as silver, platinum, and palladium also took a hit. Spot silver fell by 3.3% to $65.55 per ounce, spot platinum declined by 4.4% to $1,838.45, and palladium was down by 0.4% at $1,398.50, at the same time as spot gold's drop this morning.
Geopolitical tensions
Iran threatens to close Strait of Hormuz
The war in the Middle East escalated further when Iran threatened to strike energy and water systems of its Gulf neighbors. The threat came as a response to US President Donald Trump's warning to hit Iran's electricity grid within 48 hours. Iran's Revolutionary Guards warned that if Iranian power plants are attacked, they would completely close the Strait of Hormuz until destroyed power plants are rebuilt.
Energy market
Oil prices remained above $110 a barrel
In related news, oil prices remained above $110 per barrel as investors weighed US and Iranian threats to target energy facilities. The closure of the Strait of Hormuz kept crude elevated, fueling inflation via higher transport and manufacturing costs. While rising inflation generally boosts gold's appeal as a hedge, high interest rates are curbing demand for this asset.