Gold slides to a two-month low amid escalating military tensions in the Strait of Hormuz

Gold prices fell in European trading on Thursday to their lowest levels in two months, deepening losses for the third consecutive session under pressure from a stronger US dollar and rising global oil prices, amid escalating military tensions between the United States and Iran in the Strait of Hormuz, threatening the collapse of peace negotiations between the two sides in Doha.

More hawkish comments from several Federal Reserve officials strengthened expectations that US interest rates could be raised at least once this year, as investors await more key economic data on growth and inflation in the United States.

Price Overview

• Gold prices today: Gold prices fell 2.0% to $4,366.68, the lowest level since March 26, from the opening level at $4,456.04, and recorded a high of $4,466.58.

• At Wednesday’s settlement, gold prices lost 1.15%, marking the second consecutive daily decline, due to the stronger US dollar amid aggressive comments from Federal Reserve officials.

US dollar

The dollar index jumped more than 0.3% on Thursday, extending gains for the third consecutive session and recording a seven-week high at 99.54 points, reflecting broad strength in the US currency against a basket of major and minor currencies.

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

The rise in the US currency comes as investors avoid risk and focus on buying the dollar as the preferred safe-haven investment due to escalating military tensions between the United States and Iran in the Strait of Hormuz, threatening the collapse of the peace negotiations in Doha.

Global oil prices

Global oil prices rose by more than 3% on Thursday after the US military carried out new strikes targeting military sites inside Iran, prompting Iran’s Revolutionary Guard to suspend the passage of oil tankers through the Strait of Hormuz.

Latest developments in the Iranian war

• The United States launched new strikes on Iran targeting a military site and missile launch platforms.

• A US official said the American military carried out strikes on an Iranian military site that posed a threat to US forces and navigation in Hormuz.

• The US official described the military operation as calculated and defensive.

• Iran’s Revolutionary Guard said it targeted a US base that served as a launch point for attacks near Bandar Abbas.

• Iranian television reported that four vessels were forced to turn back after attempting to cross the Strait of Hormuz without coordination with Iranian forces.

• Tasnim News Agency said a US tanker attempting to cross the Strait of Hormuz was forced to stop and turn back.

• Kuwait’s General Staff activated air defense systems after detecting and intercepting hostile missile and drone attacks in the region.

• The escalation of these violations could trigger a severe diplomatic crisis threatening the collapse of the ongoing negotiations in Doha.

• US President Donald Trump rejected Iranian reports claiming an agreement exists.

• Iranian media reported that the agreement would restore shipping traffic through the Strait of Hormuz.

• Trump denied the existence of any agreement regarding the Strait of Hormuz with Iran and Oman.

• Iran insists on easing economic sanctions and preserving its nuclear rights, while the two sides remain far apart.

• The US Treasury Department imposed sanctions on the Iranian authority established to manage shipping traffic through the strait.

US interest rates

• Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, said fighting inflation remains the priority, as the labor market is “in a good place.”

• Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said energy inflation is proving more persistent than expected.

• According to the CME Group’s FedWatch tool, markets are currently pricing in a 54% probability that the Federal Reserve will raise interest rates in December, compared to just over 16% at the beginning of May.

• Markets are currently pricing a 99% probability that US interest rates will remain unchanged at the June meeting, while the probability of a 25 basis point rate hike stands at 1%.

• Investors will later today monitor US first-quarter economic growth data, in addition to the April personal consumption expenditures report, in order to reassess those expectations.

Gold outlook

Peter Grant, vice president and senior metals strategist at Zaner Metals, said: “The Middle East remains the biggest driver. There was still some lingering optimism, but as this situation continues, that optimism is fading.”

Grant added that the ongoing conflict in the Middle East is driving global oil prices higher and increasing inflation concerns, which negatively impacts gold prices and other non-yielding assets.

SPDR Fund

Gold holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, remained virtually unchanged on Wednesday for the third consecutive session, keeping total holdings at 1,034.85 metric tons, the lowest level since May 8.