Golden Prices Slip as US-Iran Diplomatic Efforts Stall

Global Markets Turmoil Sparks Gold Slump

Gold prices plummeted on Monday as efforts to resume peace talks between the US and Iran stalled, exacerbating a war that has upended global markets and raised inflation risks. The precious metal dropped as much as 0.6% to near $4,680 an ounce, extending a 2.5% decline in the previous week.

The war in the Middle East has caused significant disruptions, with energy flows via the Strait of Hormuz remaining choked two months into the conflict. The effective closure of Hormuz has disrupted around a fifth of the world's oil flows. Despite a fragile ceasefire largely holding over the weekend, US President Donald Trump canceled a planned trip by his top envoys to resume peace talks with Iran in Islamabad.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The energy-supply shock caused by the war has added to inflation risks, raising the likelihood that central banks will keep interest rates steady for longer or even hike them. This is a headwind for non-yielding bullion, which has lost about 11% since the conflict began at the end of February.

Investors are also assessing the Federal Reserve's path on borrowing costs after US Attorney Jeanine Pirro said on Friday she's dropping an investigation into cost overruns at the US central bank, opening the path for Trump pick Kevin Warsh to become its next chair. Traders expect Warsh to pursue a measured approach with gradual moves to lower rates, rather than delivering aggressive rate cuts urged by the president.

As the market continues to navigate the complexities of the conflict, traders are left with thin conviction and larger allocations remain sidelined. Physical gold is mixed, and the market is currently in a state of uncertainty. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose a further 0.1% after adding 0.3% last week.