Spot gold fell 0.6 per cent to $4,718.98 per ounce in early trading, after touching its lowest level since April 7, while U.S. gold futures for June delivery dropped 1 per cent to $4,742.
The decline comes as the dollar strengthened by 0.4 per cent, making dollar-denominated commodities more expensive for foreign buyers. At the same time, oil prices surged above $100 per barrel amid reports that the United States Navy is preparing a potential blockade of the Strait of Hormuz, a critical global oil transit route, raising concerns over supply disruptions.
Tensions escalated further after Iran’s Revolutionary Guards warned that any military vessels approaching the strategic waterway would be treated as violating ceasefire conditions and met with force.
Market analysts say the combined effect of a stronger dollar and surging oil prices has reduced gold’s appeal in the short term. According to Tim Waterer of KCM Trade, optimism surrounding a ceasefire has faded, shifting investor sentiment and putting downward pressure on bullion.
Gold prices have now fallen more than 11 per cent since the outbreak of the U.S.-Israeli conflict with Iran in late February, reflecting shifting market dynamics and reduced safe-haven demand.
Rising oil prices are also fuelling inflation concerns, which in turn are reshaping expectations around monetary policy. Investors now see limited chances of interest rate cuts by the Federal Reserve this year, compared to earlier projections of two rate cuts before the Middle East crisis intensified.
While gold is traditionally viewed as a hedge against inflation, higher interest rates tend to diminish its attractiveness, as the non-yielding asset competes with interest-bearing investments. The stronger dollar further compounds the pressure by reducing global demand.
In other precious metals, silver dropped 2.2 per cent to $74.23 per ounce, platinum edged down 0.5 per cent to $2,034.95, while palladium rose 1 per cent to $1,535.77, reflecting mixed sentiment across the metals market.