Gold slipped more than 1% on Monday as surging oil prices, stalled U.S.-Iran peace talks, and inflation fears drove investors away from the metal, extending a sell-off that has now wiped out over 11% of bullion’s value since the war began.
Spot gold dropped 1.1% to $4,664.99 per ounce by mid-morning London trading, while U.S. gold futures for June delivery fell 1.2% to $4,673.30, underscoring the breadth of the retreat across both physical and paper markets.
At the heart of Monday’s sell-off lies a diplomatic deadlock that shows no signs of breaking. U.S. President Donald Trump on Sunday publicly rejected Iran’s counterproposal to American-brokered peace talks aimed at ending the U.S.-Israeli military campaign against Tehran, a campaign that erupted in late February and has sent shockwaves through global commodity markets ever since.
“Totally unacceptable,” Trump declared of Tehran’s demands, slamming the door shut on what many had hoped would be a path toward de-escalation. Iranian officials responded with equal defiance, leaving both sides entrenched and markets rattled.
Also, Brent crude surged above $103 a barrel on Monday, driven by deep-seated fears that the conflict will drag on indefinitely, keeping shipping lanes through the Strait of Hormuz, one of the world’s most critical oil chokepoints, effectively paralyzed.
For many casual observers, rising inflation should be good news for gold; the metal has long been considered a classic inflation hedge, a store of value when paper currencies erode. But Monday’s market action illustrates a more nuanced and, for gold investors, more painful reality.
When inflation is driven by oil shocks rather than loose monetary policy, central banks respond not by printing money but by raising interest rates, and higher interest rates are gold’s kryptonite.
Because gold yields nothing, it becomes far less attractive when investors can park their money in bonds or savings instruments offering competitive returns.
“Inflation risks still weigh heavily on the market’s collective mind, as attempts to end the Middle East conflict reached an impasse after the U.S. and Iran rejected each other’s peace proposals,” said Han Tan, chief market analyst at Bybit.
“Gold may face greater downward pressure should tomorrow’s U.S. CPI prints come in hotter than expected, in turn forcing the Fed to keep its benchmark rates elevated for a longer period of time.”
Tan’s warning encapsulates the bind in which gold now finds itself caught between its traditional role as a haven and the cold arithmetic of monetary policy.
Any lingering hopes in financial markets that the U.S. Federal Reserve might ride to the rescue with interest rate cuts have been all but extinguished. According to CME Group’s widely followed FedWatch tool, traders have largely priced out the possibility of any Fed rate reduction this year.
More strikingly, investors now see a 31% probability that the Fed will actually hike rates by March 2027, a dramatic reversal of sentiment from earlier in the year, when cuts had been widely anticipated.
Since the U.S.-Israeli war on Iran began in late February, gold has now lost more than 11% of its value, a striking decline for an asset that many assumed would benefit from wartime uncertainty.
The counterintuitive dynamic reflects just how thoroughly the inflation-and-rates narrative has come to dominate the precious metals market.
With diplomacy stalled and energy markets on edge, investors face a packed and consequential week ahead.
April’s U.S. Consumer Price Index (CPI) data, due on Tuesday, is being watched with acute anxiety. A hotter-than-expected reading could cement expectations for prolonged elevated rates and deliver a further blow to gold prices.
A summit between President Trump and Chinese President Xi Jinping, at which the ongoing Gulf crisis is expected to feature prominently on the agenda.
Whether the two leaders can forge any kind of consensus on Middle East diplomacy or, at a minimum, signal a coordinated approach to managing the economic fallout could prove pivotal for oil, gold, and broader market sentiment in the days that follow.
Beyond the macro drama, a pointed political intervention in one of the world’s largest gold markets added another layer of pressure to Monday’s trading. Indian Prime Minister Narendra Modi urged citizens to refrain from buying gold, citing the need to protect the country’s foreign exchange reserves, an unusually direct appeal that sent shares of Indian jewelry retailers tumbling.
The statement stoked fears among industry watchers that the government may be considering a hike in gold import duties, a measure that would further dampen demand from a country that consistently ranks among the globe’s top consumers of the metal. However, a government source moved swiftly to douse those fears, stating that India has no current plans to raise import duties on gold or silver.
The reassurance offered only partial comfort; Modi’s comments alone were enough to spook investors in the sector and underscore just how sensitive the gold market has become to signals from major consuming nations.
Across the precious metals complex, the picture was mixed but broadly subdued. Spot silver bucked the trend marginally, edging up 0.2% to $80.45 per ounce. Platinum fell 0.8% to $2,039.44, while palladium slid 0.7% to $1,481.71, both weighed down by the same inflation and interest rate concerns dragging on gold.
Gold’s Monday decline is more than just a bad day for a shiny metal. It is a barometer of a world simultaneously grappling with geopolitical conflict, energy disruption, inflationary pressure, and central bank uncertainty.
For now, the forces arrayed against the yellow metal appear formidable, and until the guns fall silent in the Gulf and oil prices retreat from triple digits, the path of least resistance for gold may well remain downward.
WHAT YOU SHOULD KNOW
Gold’s sharp decline on Monday tells a story bigger than just market numbers. The core message is simple: war is making everything more expensive, and that’s paradoxically hurting the one asset people traditionally buy to escape economic turmoil.
