Gold prices fell on Monday after a recent rally. According to Bloomberg, market participants are anticipating retaliatory measures from Iran following US intervention in the Middle East conflict.
Geopolitical tensions continue to fuel interest in the precious metal, with its prices surging nearly 30% since the start of the year. Meanwhile, oil is rallying on concerns over a potential blockade of the Strait of Hormuz. A further rise in energy prices could exacerbate inflationary pressures in the US, reducing the likelihood of Federal Reserve rate cuts. As the agency notes, this dynamic is dampening demand for non-yielding assets like gold.
According to Daniel Hynes of ANZ Banking Group, markets aren't currently pricing in any significant escalation in geopolitical tensions. This explains the softening demand for safe-haven assets.
With Tehran maintaining its restrained stance and key allies providing only diplomatic support, combined with gold still trading $140 below its April high, gold's upside potential remains limited, says Bloomberg.