Gold prices edged lower on Monday as investors reassessed the economic consequences of surging oil prices triggered by the war involving Iran, with growing concern that the resulting inflation shock could force major central banks to keep interest rates higher for longer.
Spot gold fell 0.3% to $5,001.61 per ounce by 11:10 GMT, while U.S. gold futures for April delivery declined 1.1% to $5,007.20, as traders shifted focus from immediate geopolitical tensions toward the longer-term implications for inflation and monetary policy.
The retreat comes after a strong rally in bullion in recent months, driven by geopolitical tensions and expectations that global central banks—particularly the Federal Reserve—would begin easing interest rates as inflation cooled.
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Analysts say the latest oil-driven inflation risk is forcing markets to rethink that outlook.
“The gold market has moved its focus from looking at the implications of the Hormuz trade closure, and towards implications of longer-term inflation,” said Bernard Dahdah, an analyst at Natixis.
“Higher oil prices mean higher inflation and this has repercussions on the Fed. The Fed could pivot, stop cutting rates and that puts downward pressure on gold prices,” he added.
Energy markets have been at the center of the latest volatility. Oil prices have climbed above $100 per barrel, rising more than 40% this month to their highest level since 2022 after military strikes by the United States and Israel on Iranian targets triggered retaliatory action from Tehran.
Iran subsequently halted shipments through the critical Strait of Hormuz, a narrow maritime corridor between Iran and Oman that normally handles roughly one-fifth of global oil and liquefied natural gas shipments. The disruption has rattled global energy markets and revived fears of an oil supply shock similar to past geopolitical crises in the Gulf region.
For financial markets, the spike in crude prices has immediate implications. Higher energy costs typically feed into transportation, manufacturing, and consumer goods prices, pushing inflation higher across economies. That dynamic complicates the policy outlook for central banks that had only recently begun to see progress in their fight against inflation.
Central Banks Face Critical Week
The inflation risk tied to the Iran conflict arrives just as several of the world’s most influential central banks prepare to make policy decisions this week. The Federal Reserve begins a two-day policy meeting, with investors widely expecting officials to hold interest rates steady. Markets will closely watch the central bank’s statement and economic projections for clues about how policymakers view the impact of higher oil prices.
At the same time, the European Central Bank, Bank of England, and Bank of Japan are also holding policy meetings this week, making it one of the most important weeks for global monetary policy this year.
The simultaneous meetings underscore how the Iran conflict is rapidly becoming a global economic concern, forcing policymakers to weigh the risk of renewed inflation against the possibility that geopolitical tensions could slow economic growth.
Central banks now face a delicate balancing act.
On one hand, rising energy costs could push inflation higher and potentially require tighter monetary policy to prevent price pressures from spreading across the economy. On the other hand, a prolonged conflict in the Middle East could weigh on global growth, disrupt trade flows, and undermine business confidence—factors that would normally argue for looser policy.
Analysts at UBS said policymakers are likely to tread carefully.
“But we expect central banks to be watchful of inflation risks without making knee-jerk policy rate hikes,” the bank said in a note.
The outcome of these deliberations will be closely watched by investors, particularly in markets such as gold that are highly sensitive to interest rate expectations.
While rising interest rates typically weigh on gold—because the metal does not generate interest income—geopolitical instability often pushes investors toward bullion as a store of value. That competing dynamic explains why gold prices have remained near historic highs even as markets debate the future path of interest rates.
If the conflict involving Iran intensifies or spreads across the region, analysts say safe-haven demand could offset the pressure from higher yields.
UBS noted that prolonged instability could ultimately support the precious metal.
“In addition, the longer the U.S.-Iran conflict goes on, the higher the risk of negative economic impacts, which should support hedging demand for gold,” the bank said.
Precious Metals Show Mixed Performance
Other precious metals moved in different directions during Monday’s trading session as investors adjusted positions ahead of the wave of central bank decisions.
Spot silver dropped 2.1% to $78.86 per ounce, tracking broader weakness in metals markets. Meanwhile, platinum climbed 2.6% to $2,076.23, supported by expectations of tighter supply in industrial markets, while palladium slipped 0.3% to $1,547.14.
For global investors, the coming days could prove decisive. Monetary policy signals from the world’s leading central banks, combined with developments in the Middle East conflict, are likely to determine whether gold resumes its upward momentum or faces further pressure from shifting expectations around inflation and interest rates.