Gold Retreats as Strait of Hormuz Closure Revives Inflation Fears, Undermines Last Week's Rally

Gold prices extended their decline Monday, giving back the bulk of gains earned during last week's brief ceasefire optimism, as renewed hostilities in the Persian Gulf sent oil prices sharply higher and reignited concerns over energy-driven inflation. The reversal serves as a stark reminder of just how tightly precious metals remain tethered to geopolitical developments in the Middle East.

Front-month gold settled down 1.1% on Monday to $4,806.50 a troy ounce, following a 1.3% drop in early European trading that had pushed New York futures to $4,815.30. The two-day slide has effectively erased the metal's gains from last week, when news that the Strait of Hormuz would remain open during a ceasefire period had propelled gold above $4,850 and pushed silver above $82 per troy ounce, its highest level since mid-March. That optimism has now fully unwound.

The Ceasefire That Wasn't

The proximate cause of Monday's selling was the collapse — or near-collapse — of the short-lived truce between the United States and Iran. The U.S. seized an Iranian cargo ship that attempted to run its blockade, and Iran said it would retaliate, raising the possibility that the ceasefire might not survive even the two days it was set to remain in force. Tehran also said it would not participate in a second round of negotiations the U.S. had hoped to initiate before the ceasefire's Tuesday expiration. 

President Trump remained active on his Truth Social platform, posting repeatedly in defense of U.S. objectives and reiterating that America's goal is to ensure Iran cannot develop a nuclear weapon. The uptick in rhetoric has stiffened the geopolitical premium embedded in oil markets and, paradoxically, weighed on the precious metals that many investors regard as the ultimate safe haven.

The reason for that counterintuitive dynamic is by now well understood by market participants. "Gold prices are lower today after the U.S.-Iran war ceasefire that markets celebrated last week appeared to be breaking down," said Ilya Spivak, head of global macro at Tastylive. "That has revived the now-familiar 'war trade' dynamics we've seen since the beginning of the conflict. Crude oil prices gained, which echoed into inflation expectations and drove up both yields and the U.S. dollar." 

Dollar Strength and the Rate Expectations Channel

According to CNBC The U.S. dollar index rose 0.1% to 98.24 on Monday, adding further headwind for dollar-denominated commodities. Analysts at Saxo Bank captured the core dynamic succinctly: "Gold and silver remain highly sensitive to developments in the Middle East given the knock-on impact on the dollar, bond yields, and U.S. rate expectations." The latest weakness, they noted, has been driven by a combination of renewed dollar strength and fresh concerns about energy-led inflation.

Benchmark 10-year U.S. Treasury yields rose Monday, increasing the opportunity cost of holding non-yielding bullion.  While gold is traditionally viewed as an inflation hedge, the mechanism only works cleanly when real rates are falling. When inflation fears push nominal yields higher faster than break evens adjust, gold suffers. That is precisely the environment Monday's market delivered.

"Gold traders on this day are choosing the bearish daily elements — higher dollar, yields — for the metals. Technically, June gold futures bulls' next upside price objective is to produce a close above solid resistance at $5,000," said Jim Wyckoff, senior analyst at Kitco Metals. 

Silver and Platinum Mirror the Decline

Silver bore the sharpest proportional losses, falling 2.2% to settle at $79.95 an ounce — retreating from the multi-week highs touched Friday. Platinum dropped 2.3% to $2,092 an ounce, while palladium slipped 0.3% to $1,554.48 after touching a one-week low. 

Silver's relative underperformance is consistent with its dual industrial and monetary character. When inflation concerns mount and the macro outlook clouds, silver tends to amplify gold's moves on the downside, as the industrial demand component weakens alongside the investment rationale.

The Bigger Picture: Still Down Nearly 10% From Pre-War Highs

Monday's move must be understood in the context of the broader price trajectory since the conflict began. Gold prices have fallen roughly 8% since the U.S. and Israel launched strikes on Iran in late February, on concerns that higher energy prices could stoke inflation and keep global interest rates elevated for longer.  The metal remains caught in a structural bind — geopolitical fear would ordinarily drive safe-haven flow into bullion, but when that fear is expressed through an oil supply shock, the inflation and rate channel works against gold at the same time.

Gold continues to recover somewhat, supported by signs of easing tensions in the Middle East, with Donald Trump reportedly having informed advisers of his willingness to end the confrontation with Iran. But Monday's session showed how quickly that calculus can shift.

What to Watch

The immediate focal point remains the fate of ceasefire negotiations. "In the interim, we still expect gold's directional trade to take cues from broader risk sentiment, and this is highly dependent on how ceasefire talks pan out," said Christopher Wong, a strategist at OCBC. 

Looking further out, gold prices are expected to show moderate volatility this week, with the U.S. April manufacturing and services PMI data, initial jobless claims, and University of Michigan inflation expectations among the key data releases. Beyond the near-term noise, the structural underpinnings for gold — central bank accumulation, de-dollarization trends, and a broadly weakening fiscal position in the U.S. — remain intact. Goldman Sachs holds a $5,400 target for gold in 2026. JPMorgan calls gold its highest-conviction long, with a $6,300 forecast. 

For now, however, the market is in reactive mode. Every headline out of the Strait of Hormuz carries the potential to move gold by 1% or more in either direction. Until the geopolitical situation stabilizes and the inflation trajectory becomes clearer, precision in tactical positioning will matter as much as the longer-term thesis.

Wishing you as always good trading,