Gold slides to nearly 4-month low as Mideast tensions stoke inflation fears

Gold prices slipped more than 2% on Monday, hitting a nearly four-month low, as an escalating Middle East conflict stoked inflation concerns and expectations of higher global interest rates.

Spot gold fell 2.7% to $4,366.94 per ounce as of 0432 GMT, extending losses into a ninth straight session.

The metal, which fell to its lowest since January 2 on the day, lost more than 10% last week. US gold futures for April delivery fell 4.5% to $4,369.90.

“With the Iranian conflict into its fourth week, and oil prices hanging around the $100 level, expectations have pivoted from rate cuts to potential rate hikes, which have tarnished gold’s appeal from a yield point of view,” said Tim Waterer, chief market analyst, KCM Trade.

Meanwhile, Iran said on Sunday it would strikethe energy and water systems of its Gulf neighbours in retaliation if US President Donald Trump follows through with his threat on histhreat to hit Iran’s electricity grid in 48 hours.

“Gold’s high liquidity appears to be hurting it during this risk-off period. Downturns in stock markets are leading to gold portions being closed to cover margin calls on other assets,” Waterer said.

Asian shares fell and oil prices stayed well above $110 a barrel, as investors weighed US and Iranian threats to target energy facilities.

The closure of the Strait of Hormuz kept crude elevated, stoking inflation fears by pushing up transport and manufacturing costs.

While rising inflation typically boosts gold’s appeal as a hedge, high rates curb demand for the non-yielding asset.

Market pricing for a US Federal Reserve rate hike this year has shot up, and is now seen as far more likely than a rate cut, with rate futures pricingin around a 32% chance of a rate hike by December, per the CME FedWatch tool.

Spot silver lost 3.4% to $65.45 per ounce. Spot platinum fell 3.4% to $1,857.67 and palladium was steady at $1,403.10.