Key insights
- Tensions in the Strait of Hormuz are causing volatility in gold and oil prices. While the immediate impact on US equities is limited, escalating geopolitical risk could lead to higher energy prices and inflation, indirectly pressuring equities. The dollar's strength is also weighing on gold.
Investing.com - Gold prices edged lower in thin trading on Monday, after the dollar firmed and oil prices spiked amid worries over fresh tensions in the Middle East.
Get more insights on gold by subscribing to InvestingPro - now 50% off
By 07:27 ET (11:27 GMT), spot gold had dropped by 1.1% to $4,563.68 an ounce, while gold futures declined by 1.5% to $4,573.94.
Iran’s navy has said it has turned away enemy warships attempting to traverse the Strait of Hormuz following a "swift and decisive warning," Reuters reported on Monday, citing Iranian state television.
Reuters was not able to immediately confirm the reports, while U.S. Central Command said no U.S. navy ships had been hit.
Tehran is ready for any possible scenario and will not be bullied by the U.S., an unnamed source told Iran’s Tasnim news agency said, according to Reuters. Tasnim added that aside from firing in the direction of U.S. warships, Tehran had prepared other scenarios it stands ready to activate if necessary.
Earlier, Iran’s military had issued warnings to U.S. forces not to enter the Strait of Hormuz, following President Donald Trump’s claim that the U.S. would begin to "guide" out vessels stranded by the effective closure of the narrow waterway. Any commercial vessels should also not make any movements would approval from Tehran’s armed forces, Iran’s military added.
Over the weekend, Trump unveiled what he called "Project Freedom," a push to help reopen stalled shipping traffic through the strait, a vital conduit for a fifth of the world’s oil. Trump provided few details around the plan.
On Monday, the Associated Press reported that the U.S.-led Joint Maritime Information Center had set up an "enhanced security area" south of traditional shipping routes. Typical routes through the strait are considered to be "extremely hazardous" due to the presence of naval mines that "have not been fully surveyed and mitigated," the center said, according to the AP.
Against this backdrop, Brent crude futures, the global oil benchmark, jumped back above $110 a barrel. Concerns have swirled around the impact that crude costs, now well above pre-war levels, will have on inflation in countries around the world.
Many central banks are widely expected to react to these pressures by adopting more hawkish policy stances. This may not bode well for gold, a non-yielding asset which tends to underperform in higher rate environments.
Meanwhile, the U.S. dollar, recently viewed as a relative safe haven during the crisis, firmed. Investors have suggested the U.S. economy’s status as a major energy exporter may help insulate it from the oil price shock, bolstering the appeal of the greenback.
A stronger dollar can weigh on bullion by making the yellow metal more expensive for overseas buyers.
(Ambar Warrick contributed reporting)