Gold and silver prices continued to see sharp losses on Monday, with bullion failing to act as a traditional safe haven amid the Iran conflict, as rate cut hopes fade and markets are instead pricing higher borrowing costs to tame the potential rise in global consumer prices.
Gold slid more than 8% on Monday to hit its lowest level in four months, after logging its biggest weekly loss in about 43 years last week, as an escalating Middle East conflict stoked inflation concerns and raised expectations of higher global interest rates.
Spot gold declined 6.3% to $4,203.21 per ounce by 07:57 a.m. GMT, extending losses into a ninth straight session. It had shed more than 8% to $4,097.99 earlier in the session to its lowest level since Nov. 24.
The metal dropped more than 10% last week, its steepest weekly loss since February 1983, and has also retreated about 25% from its record peak of $5,594.82 an ounce reached on Jan. 29.
Silver has seen even steeper losses. Prices have dropped by nearly half from a record high of around $122 per ounce at the end of January. On Monday, silver fell a further 5% to around $64.25, leaving it down more than 30% since the Iran conflict began just over three weeks ago.
Later during the day, it slipped below $64.
Rising oil prices have increased inflation risks and reduced expectations for near-term interest rate cuts by the U.S. Federal Reserve (Fed) and other central banks. Higher interest rates typically weigh on non-yielding assets such as gold.
Monday's decline wiped out all gains made since the start of the year. Gold has fallen nearly $1,300, or about 23%, from its record high of close to $5,600 in late January.
"With the Iranian conflict into its fourth week, and oil prices hanging around the $100 level, expectations have pivoted from rate cuts to potential rate hikes, which have tarnished gold's appeal from a yield point of view," said Tim Waterer, chief market analyst, KCM Trade.
Iran said on Sunday it would strike the energy and water systems of its Gulf neighbours in retaliation if U.S. President Donald Trump followed through with his threat to hit Iran's electricity grid.
Asian shares fell, and oil prices stayed above $110 a barrel.
"Gold's high liquidity appears to be hurting it during this risk-off period. Downturns in stock markets are leading to gold portions being closed to cover margin calls on other assets," Waterer said.
The closure of the Strait of Hormuz has kept crude elevated, stoking inflation fears by pushing up transport and manufacturing costs. While rising inflation typically boosts gold's appeal as a hedge, high rates curb demand for the non-yielding asset.
"A reinforced shift from safe-haven allocation towards macro-driven positioning could skew risks further to the downside, as a firmer U.S. dollar and the receding probability of the Fed easing dominate the narrative," said BMI, a unit of Fitch Solutions.
Market pricing for a U.S. Federal Reserve rate hike this year has shot up, with rate futures showing the U.S. central bank is more likely to raise interest rates than cut them by the end of 2026, according to CME's FedWatch tool.
Other precious metals also declined sharply, including platinum, which was down 6.4% to $1,799.25.
