Gold prices drop as failed US-Iran talks lift oil prices

Gold prices retreated to a near one-week low on Monday as a stronger dollar and rising energy costs weighed on the market. The breakdown of diplomatic discussions between the United States and Iran has heightened inflation concerns, reducing the likelihood of interest rate cuts by the Federal Reserve in the near term. Spot bullion fell 0.7% to $4,716.70 per ounce, its lowest level since April 7, while futures for June delivery dropped 1% to $4,738.90. The dollar index rose 0.4%, increasing the cost of the metal for buyers using other currencies. Energy markets saw a significant reaction to the geopolitical friction, with Brent Crude Oil prices climbing back above $100 per barrel. This surge followed reports that the U.S. Navy is preparing a blockade of the Strait of Hormuz, a move that could severely limit Iranian exports. Iran's Revolutionary Guards responded with a warning that any military vessels approaching the strategic waterway would be treated as a violation of the ceasefire and dealt with decisively. > Ceasefire optimism has unwound following the failure of the peace talks, and the resulting push higher by the dollar and oil prices has put gold on the back foot again, said Tim Waterer, chief market analyst, KCM Trade. Since the conflict involving the U.S. and Israel against Iran began on February 28, spot gold has declined by more than 11%. While gold is often sought as a safe haven during times of geopolitical risk and high inflation, its lack of yield makes it less attractive when interest rates are expected to remain elevated. > As soon as oil prices push back above $100, attention quickly turns to potential central bank rate hikes to curb inflation, and it is this interest rate outlook that is undermining golds performance, Waterer said. Investors have shifted their expectations regarding monetary policy, now seeing minimal chance of a U.S. rate cut this year as energy-driven inflation risks persist. This contrasts with the two rate cuts that were anticipated prior to the escalation of Middle East tensions. In other precious metals trading, Silver dropped 2% to $74.35 per ounce and Platinum edged down 0.2% to $2,041.40. Meanwhile, Palladium bucked the broader trend, rising 0.7% to $1,530.80.