Gold Eases as US Plan to Blockade Hormuz Raises Inflation Risks

SEATTLE (Scrap Monster): Gold edged down amid mounting inflation concerns after US President Donald Trump’s order to blockade the Strait of Hormuz deepened the global energy-supply shock.

Bullion fell as much as 2.2% to trade below $4,650 an ounce before retracing much of the loss. Trump said Iran reached out about peace talks as US forces began a naval blockade of the strait. Iran has blamed the weekend collapse of ceasefire negotiations on the US and Tehran has not confirmed further discussions.

Oil pared some early gains but still hovered around $98 a barrel as Trump spoke at the White House. The dollar and bond yields pushed lower, helping bullion.

Still, elevated energy prices and the US consumer price index are shifting investors’ focus back to inflation. US money markets are pricing in less than a one-in-five chance of a rate cut by December. This is a negative for non-yielding bullion, which benefits from lower borrowing costs.

“Events over the weekend clearly put the fragile ceasefire at risk and likely prolong the conflict,” said Paras Gupta, head of discretionary portfolio management in Asia at Union Bancaire Privée. But he added that price movements in gold were “less exaggerated” than earlier in the war.

The Swiss private bank is gradually adding bullion to discretionary client portfolios after cutting exposure to 3% from around 10%.

Bullion has fallen about 10% since the conflict began at the end of February, with a liquidity squeeze in the early weeks pushing investors to offload the metal to cover losses elsewhere. More recently, gold has clawed back some losses as a growing focus on slowing economic growth countered the risk of higher interest rates.

This shift should continue to provide some support for bullion despite Monday’s decline, said Daniel Hynes, senior commodity strategist at ANZ Banking Group Ltd.

Spot gold fell 0.2% to $4,739.81 an ounce by 4:43 p.m. in New York. Silver dropped 0.5% to $75.53 an ounce. Platinum and palladium both rose.

Courtesy: www.reuters.com