Gold prices fell sharply on Monday as rising oil prices and fading expectations for U.S. interest rate cuts weakened appetite for bullion, with investors increasingly worried that an extended Middle East conflict could reignite global inflation pressures.
Spot gold dropped 1.1% to $4,664.99 per ounce by mid-session trading, while U.S. gold futures for June delivery fell 1.2% to $4,673.30. The decline came as crude oil prices climbed above $103 a barrel after negotiations between Washington and Tehran showed little sign of progress, deepening fears that disruptions in the Gulf could persist for longer than markets initially anticipated.
U.S. President Donald Trump on Sunday rejected Iran’s latest response to a proposed peace framework, saying Tehran’s demands were “totally unacceptable.”
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The deadlock renewed concerns that the war could continue to disrupt shipping through the Strait of Hormuz, one of the world’s most important energy corridors. Brent crude rose as traders assessed the risk of prolonged paralysis across key Gulf shipping routes, with the conflict increasingly feeding into broader concerns about global inflation, central bank policy, and economic growth.
“Inflation risks still weigh heavy 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.
The recent selloff underscores a growing paradox in the gold market. Bullion is traditionally viewed as a hedge against inflation and geopolitical instability. However, the current environment has seen investors prioritize interest-rate expectations over safe-haven demand.
Gold has now fallen more than 11% since the U.S.-Israeli war on Iran began in late February, with rising oil prices becoming a major source of pressure on precious metals. Higher crude prices increase inflation risks across the global economy by raising transportation, manufacturing, and energy costs. That in turn strengthens the case for central banks, particularly the U.S. Federal Reserve, to keep interest rates elevated for longer.
Because gold does not offer interest income, higher rates reduce its relative attractiveness compared with yield-bearing assets such as bonds and money-market instruments.
Markets have increasingly scaled back expectations for Federal Reserve easing this year. According to CME Group’s FedWatch tool, traders now see a meaningful possibility that the Fed could even raise rates again by early 2027, a dramatic shift from earlier expectations of multiple cuts. The repricing in interest-rate expectations has become one of the dominant drivers across global asset markets, influencing currencies, equities, bonds, and commodities simultaneously.
Analysts say the gold market is now caught between two opposing macro forces: geopolitical instability, which would normally support safe-haven demand, and inflation-driven monetary tightening, which is pushing real yields higher and weighing on bullion. Investors are also closely watching a series of major geopolitical and economic events this week that could further shape market direction.
Attention is turning toward Tuesday’s U.S. consumer price index report, which could provide a clearer indication of whether energy-driven inflation pressures are beginning to filter more broadly through the economy.
“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 said.
A stronger-than-expected inflation reading would likely reinforce the market’s growing belief that the Fed will remain restrictive well into 2027. Traders are also monitoring a scheduled meeting between President Trump and Chinese President Xi Jinping on Wednesday, where the Gulf conflict is expected to feature prominently.
The meeting comes as Beijing seeks to protect its energy security interests in the Middle East while balancing increasingly complex geopolitical tensions involving Washington, Tehran, and regional Gulf states. China remains heavily dependent on Gulf oil imports, making any sustained disruption in Hormuz particularly significant for Asian economies.
Beyond macroeconomic concerns, the conflict is also beginning to ripple through consumer markets. Shares of Indian jewelry retailers declined after Indian Prime Minister Narendra Modi urged citizens to avoid excessive gold purchases to help preserve the country’s foreign exchange reserves.
The comments triggered market speculation that India could raise import duties on gold and silver to curb demand and reduce pressure on the current account. However, a government source later said New Delhi had no plans to increase import tariffs on precious metals. India remains one of the world’s largest gold consumers, and any policy changes affecting imports can significantly influence global physical demand dynamics.
Other precious metals showed mixed performance.
Spot silver edged up 0.2% to $80.45 per ounce, supported partly by industrial demand expectations tied to renewable energy and electronics manufacturing.
Platinum fell 0.8% to $2,039.44, while palladium slipped 0.7% to $1,481.71.
The broader commodities market continues to reflect a growing concern that the Middle East conflict is evolving from a geopolitical crisis into a structural inflation risk capable of reshaping monetary policy expectations globally.
For gold investors, the key challenge is that the metal’s traditional role as a safe haven is being overshadowed, at least for now, by the market’s fear that higher energy prices could keep global borrowing costs elevated far longer than previously expected.