Gold price edges lower after failed US-Iran peace talks

Gold prices edged lower on Monday to a one-week low as inflation worries re-emerged following the collapse of the latest US-Iran peace talks.

Spot gold fell as much as 2.2% to below $4,650 an ounce — erasing all its gains from last week. By 11 a.m. ET, it had recovered to around $4,720 an ounce, down 0.8% on the day.

Meanwhile, oil prices and the dollar both rallied on US President Donald Trump’s order to blockade the Strait of Hormuz, after weekend talks to end the Middle East conflict failed to materialize.

The latest development reignited fears of a prolonged energy shock and high inflation, adding to investor expectations of tighter monetary policy for the foreseeable future. Such a scenario adds pressure to non-yielding assets such as gold.

“It’s ​a very headline-driven market. All eyes are on the price of crude oil because ​crude oil is going to direct inflation and that is going to direct Federal Reserve policy,” Phillip Streible, chief market strategist at Blue Line Futures, said.

At the moment, money markets only see ​about a 21% chance of ​a US rate ⁠cut by the end of this year, down from 40% previously.

Swiss bank turns buyer

“Events over the weekend clearly put the fragile ceasefire at risk and likely prolong the conflict,” Paras Gupta, head of discretionary portfolio management in Asia at Union Bancaire Privée, told Bloomberg earlier.

He added that price movements in gold were “less exaggerated” compared to the start of the Middle East war, when they initially spiked but have since crashed by more than 10%. In March, bullion had its worst monthly performance since 2008.

The sharp drop in gold prices, however, allowed some to take the opportunity to load up on the metal, including UBP.

Gupta said they have been gradually adding bullion to discretionary client portfolios, after cutting exposure to 3% from around 10%.

He went on to say that the Swiss bank is looking to further rebuild its gold positions, consisting mostly of exchange-traded funds, and sees prices rising to $6,000 an ounce by the end of the year as structural demand remain intact.