Gold prices fell more than 3% in European trading on Monday at the start of the week and may lose the ability to trade above the psychological $5,000 per ounce level, as the US dollar surged broadly in the foreign exchange market.

Rising energy costs have fueled concerns about accelerating inflation again across most of the world and have further reduced expectations for near-term interest rate cuts by the Federal Reserve.

Price Overview

Gold prices today: gold fell more than 3.0% to $5,014.90, down from the opening level of $5,171.83, after reaching a session high of $5,192.56.

At Friday’s settlement, gold prices rose 1.75%, marking the second gain in the past three days as prices recovered from a two-week low of $4,996.10 per ounce.

Last week, gold lost more than 2%, marking its first weekly decline in five weeks and the largest weekly drop since late December, as investors focused on buying the US dollar.

US Dollar

The dollar index rose 0.85% on Monday, reaching a four-month high of 99.70, reflecting broad strength in the US currency against a basket of major and secondary currencies.

As is well known, a stronger US dollar makes gold bullion priced in the currency less attractive to buyers holding other currencies.

The rally in the dollar comes as investors purchase the US currency as a preferred safe-haven asset, with the Iran war entering its tenth day and signs growing of a broader military conflict in the Middle East, particularly after Mojtaba, Khamenei’s son, was selected as his successor — a move not welcomed in the United States.

Global oil prices jumped about 30% on Monday, breaking above $100 per barrel for the first time since 2022 and approaching the $120 level, as major Middle Eastern oil producers cut supplies amid fears that shipments through the Strait of Hormuz will remain disrupted.

US interest rates

According to the CME FedWatch tool from CME Group, markets are pricing a 98% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25-basis-point rate cut stands at 2%.

Markets are also pricing an 85% probability that rates will remain unchanged at the April meeting, while the chance of a 25-basis-point rate cut is about 15%.

To reassess these expectations, investors are closely watching the release of key US inflation data for February later this week.

Gold outlook

Tim Waterer, chief market analyst at KCM Trade, said gold prices are falling today despite market turbulence because higher oil prices have strengthened the US dollar amid rising inflation concerns and reduced expectations for rate cuts.

He added that a large part of gold’s rally over the past twelve months had been based on expectations of looser US interest rate policy. However, with inflation risks increasing due to oil prices above $100 per barrel, rate cuts are no longer a certainty, and gold has begun to reprice accordingly.

SPDR fund

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by 2.57 metric tons on Friday, marking the fourth consecutive daily decline and bringing total holdings down to 1,073.32 metric tons, the lowest level since January 12.

Crude oil prices jumped above $100 per barrel on Sunday after major producers in the Middle East cut production levels due to the continued closure of the vital Strait of Hormuz amid the war with Iran.

US West Texas Intermediate crude rose 18.98%, or $17.25, to reach $108.15 per barrel by 6:12 p.m. Eastern Time. Global benchmark Brent crude also climbed 16.19%, or $15.01, to $107.70 per barrel.

US crude had already surged about 35% last week, marking the largest weekly gain in the history of oil futures trading since contracts began trading in 1983.

The last time oil prices exceeded $100 per barrel was after the outbreak of the Russia–Ukraine war in 2022.

Production cuts in Gulf states

Kuwait, the fifth-largest producer in OPEC, announced on Saturday a precautionary reduction in oil production and refinery output due to what it described as “Iranian threats to the safety of ship transit through the Strait of Hormuz.”

The state-owned Kuwait Petroleum Corporation did not disclose the scale of the cuts.

In Iraq, the second-largest producer in OPEC, production has effectively collapsed, with output from the country’s three main southern oil fields dropping by 70% to about 1.3 million barrels per day, according to three industry officials who spoke to Reuters on Sunday.

These fields had previously produced about 4.3 million barrels per day before the war with Iran erupted.

The United Arab Emirates, OPEC’s third-largest producer, also announced on Saturday that it is “carefully managing production levels at offshore fields to meet storage requirements.”

Abu Dhabi National Oil Company said that its onshore operations continue to run normally.

Storage crisis and closure of the Strait of Hormuz

Arab Gulf states are cutting production due to a shortage of storage capacity, as oil shipments pile up without export destinations following the closure of the Strait of Hormuz.

Oil tankers are avoiding the narrow waterway out of fear of Iranian attacks. About 20% of global oil consumption passes through the strait.

War continues despite Trump remarks

The war shows no clear signs of easing, despite US President Donald Trump saying it has “effectively ended.”

Reports indicate that Iran has appointed Mojtaba Khamenei, the son of Supreme Leader Ali Khamenei, as the country’s new supreme leader after his father was killed in the early days of the war by US and Israeli forces.

Washington expects shipping to resume soon

US Energy Secretary Chris Wright said that ship traffic through the strait will resume once the United States succeeds in destroying Iran’s ability to threaten oil tankers.

He added in an interview with CNN that ship movements through the Strait of Hormuz could return more regularly soon.

He noted that shipping activity is still far from normal at present, explaining that a full recovery may take some time, but emphasized that even the worst-case scenario may last only a few weeks rather than months.

The euro fell in European trading on Monday to its lowest level in four months against the US dollar, as investors continued to favor the US currency as a preferred alternative investment amid the escalating war with Iran.

The single currency is also under heavy pressure from the worsening global energy crisis, especially after the sharp surge in oil and natural gas prices. The crisis is expected to drive prices higher and accelerate inflation across the euro area, placing increasing inflationary pressure on policymakers at the European Central Bank.

This comes at a time when the European economy may require additional monetary support to limit the slowdown in economic activity, creating a complex policy challenge between containing inflation and supporting growth.

Price Overview

Euro exchange rate today: the euro fell about 0.95% against the dollar to $1.1507, its lowest level since November 24, down from Friday’s closing level of $1.1616. The session’s high was recorded at $1.1563.

The euro ended Friday’s trading up less than 0.1% against the dollar amid modest buying from lower levels.

Last week, the euro lost about 1.7% against the dollar, marking its largest weekly decline since April 2024 due to the global energy crisis.

Global energy prices

Global oil prices jumped more than 30% at the start of trading on Monday, breaking decisively above the $100 per barrel threshold for the first time since 2022 and heading toward their largest daily gain in nearly 40 years.

Prices are rapidly approaching the $120 per barrel level as the military conflict in the Middle East intensifies, with major producers in the region cutting output following attacks on energy facilities.

TTF natural gas futures also surged about 50% over the past week to exceed €52 per megawatt-hour, the highest level since early 2023.

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. The seasonal refilling of natural gas storage in Europe is about to begin, and the European Union is entering the season with record-low gas inventories, meaning it will need to purchase large volumes of energy at a time when prices could rise sharply.

US Dollar

The dollar index rose 0.85% on Monday to a four-month high of 99.70, reflecting broad strength in the US currency against a basket of global peers.

The rally comes as investors buy the dollar as a preferred safe-haven asset, with the Iran war entering its tenth day and signs growing of a wider military conflict in the Middle East, particularly after Mojtaba, Khamenei’s son, was selected as his successor — a move not welcomed in the United States.

Views and analysis

Ray Attrill, head of FX strategy at National Australia Bank, said the US dollar is receiving strong support from traditional safe-haven demand as well as from the United States’ status as a net energy exporter, in sharp contrast to most European countries.

Michael Every, global strategist at Rabobank, said the longer the heated situation continues, the more rapidly the damage will multiply, something that oil markets are already reflecting after last week’s expectations that conditions could become far worse.

Deepali Bhargava, head of regional research for Asia-Pacific at ING, said the real question is how high prices will rise and how long they will remain elevated, as that will ultimately determine the economic consequences.

She added that a prolonged conflict combined with continued currency weakness would directly increase inflationary pressures across the region.

George Saravelos, head of global FX research at Deutsche Bank, said the impact of the Iran war on the euro/dollar pair revolves around a single factor: energy.

He added that a negative supply shock is currently forming, acting as a direct tax on Europeans that must be paid to foreign producers in US dollars.

Analysts at ING also wrote in a research note that the position of the European Central Bank has suddenly come into question and that they doubt the issue can be resolved in the very near term.

They added that the possibility of the ECB raising interest rates represents a serious risk to interest rate spread trades and could lead to a significant widening in euro area government bond spreads.

European interest rates

Following higher-than-expected inflation data released last week in Europe, money markets sharply reduced pricing for a 25-basis-point rate cut by the European Central Bank in March from 25% to just 5%.

To reassess these expectations, investors are awaiting additional economic data from the euro area on inflation, unemployment, and wages.

The Japanese yen fell broadly in Asian trading on Monday against a basket of major and secondary currencies, extending its losses for a third consecutive session against the US dollar and hitting a two-month low, as investors continued to favor the US currency as a preferred alternative investment. The move comes as global oil prices surged and moved close to the $120 per barrel mark for the first time since 2022.

The decline in the Japanese currency came despite the release of strong data from Tokyo earlier today, showing that real wages in Japan rose to their highest level in six months, which could increase inflationary pressure on policymakers at the Bank of Japan.

Price Overview

Japanese yen exchange rate today: the dollar rose 0.75% against the yen to ¥158.90, the highest level since January 23, up from Friday’s closing level of ¥157.75, while the session’s low was recorded at ¥158.03.

The yen ended Friday’s trading down 0.15% against the dollar, marking its second consecutive daily loss due to the fallout from the Iran war.

Last week, the yen lost about 1.1% against the dollar, marking its third consecutive weekly decline, driven by the military conflict in the Middle East and reduced expectations for Japanese interest rate hikes.

Global oil prices

Global oil prices jumped more than 30% at the start of trading on Monday, breaking above the $100 per barrel threshold for the first time since 2022 and heading toward their largest daily gain in nearly 40 years.

Prices are rapidly approaching the $120 per barrel mark as the military conflict in the Middle East intensifies, prompting major producers in the region to cut output following attacks on energy facilities.

US Dollar

The dollar index rose 0.85% on Monday, reaching a four-month high of 99.70, reflecting broad strength in the US currency against a basket of global peers.

The rally comes as investors buy the dollar as a preferred safe-haven asset, with the Iran war entering its tenth day and signs growing of a wider military conflict in the Middle East, particularly after Mojtaba, Khamenei’s son, was selected as his successor — a development not welcomed in the United States.

Views and analysis

Ray Attrill, head of FX strategy at National Australia Bank, said the US dollar is receiving strong support from traditional safe-haven demand as well as from the United States’ status as a net energy exporter, in sharp contrast to most European countries.

Michael Every, global strategist at Rabobank, said: “The longer this heated situation continues, the more rapidly the damage multiplies, which is now being reflected in oil markets that last week still had some expectations that the situation could become far worse.”

Deepali Bhargava, head of regional research for Asia-Pacific at ING, said the real question is how high prices will rise and how long they will remain elevated, as this will ultimately determine the economic consequences.

She added that a prolonged conflict combined with continued currency weakness would directly increase inflationary pressures across the region.

Japanese wages

Japan’s labor ministry said Monday that total monthly cash earnings and a separate measure of full-time wages rose 3.0% year-on-year in January, the fastest pace since July and above expectations for a 2.5% increase, after wages had risen 2.4% in December.

The strong wage growth paves the way for further increases in prices and faster inflation in the coming period. Renewed inflationary pressure on policymakers at the Bank of Japan strengthens the case for interest rate hikes this year.

Japanese interest rates

Following the above data, market pricing for a 25-basis-point rate hike by the Bank of Japan at its March meeting remained at 5%.

Pricing for a 25-basis-point rate increase at the April meeting rose from 25% to 35%.

In the latest Reuters poll, the Bank of Japan is expected to raise interest rates to 1% by September.

Analysts at Morgan Stanley and MUFG wrote in a joint research report that they had previously viewed the probability of a rate hike in March or April as low, but with rising uncertainty stemming from developments in the Middle East, the Bank of Japan is likely to adopt a more cautious stance, reducing the likelihood of near-term rate increases.

Investors are now awaiting additional data on inflation, unemployment, and wages in Japan to reassess these expectations.