Gold dives to four-month low as Middle East conflict stokes inflation fears, rate hike bets

LONDON: Gold prices plunged more than eight per cent on Monday to hit their lowest level in four months, extending a brutal selloff fuelled by an escalating Middle East conflict that has stoked inflation concerns and raised expectations of higher global interest rates.

Spot gold declined 6.3 per cent to $4,203.21 per ounce by 07:57 GMT (12:57pm PKT), extending losses into a ninth consecutive session. Earlier in the session, the metal had shed more than eight per cent to touch $4,097.99, its lowest level since November 24.

Steepest weekly loss since 1983

The decline on Monday came after gold logged its steepest weekly loss in approximately 43 years last week, dropping more than 10 per cent — the sharpest weekly fall since February 1983. The precious metal has now retreated about 25 per cent from its record peak of $5,594.82 an ounce, which was reached on January 29.

US gold futures for April delivery also fell sharply, dropping 8.1 per cent to $4,205.10.

Iranian conflict shifts rate expectations

Analysts attributed the sustained selloff to a fundamental shift in interest rate expectations driven by the ongoing conflict in the Middle East and its impact on energy prices.

"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 at KCM Trade.

The remarks highlight how the geopolitical turmoil has upended earlier market assumptions about the trajectory of monetary policy globally. With oil prices sustained near the $100 mark amid the Iranian conflict, central banks are now expected to consider tightening rather than easing, diminishing gold's traditional appeal as a non-yielding safe-haven asset.

The ninth straight session of losses marks one of the longest losing streaks for gold in recent memory, as the combination of elevated energy costs, mounting inflationary pressures, and the prospect of higher interest rates continues to weigh heavily on the precious metal.

Gold's dramatic retreat from its January record high underscores the rapid reversal in market sentiment that has taken place over recent weeks, as geopolitical developments in the Middle East have reshaped the global economic outlook and investor expectations around monetary policy.