Spot gold fell as much as 2.2%, dipping below US$4,650 an ounce, after reports the US would begin enforcing a blockade of the Strait of Hormuz — a move that pushed energy prices higher and revived worries about rising inflation.

Price moves and market reaction - Spot gold dropped as much as 2.2%, slipping below US$4,650 an ounce before trimming losses. - Futures in New York (June delivery) were down about 1.3% in early trading. - The Bloomberg Dollar Spot Index and other dollar gauges strengthened, putting pressure on dollar-priced bullion for holders of other currencies. - Benchmark US 10-year Treasury yields rose and equity futures weakened as traders priced a renewed shock to energy supplies. What triggered the move The immediate catalyst was a US announcement that it would begin enforcing a blockade of the Strait of Hormuz. The US military said the blockade would start at 10 a.m. Eastern Time, after talks between Washington and Tehran failed to produce a lasting agreement to turn a fragile ceasefire into a longer-term peace. Donald Trump said US forces would interdict vessels that had paid Iran for safe passage through the waterway. Before the conflict, about one-fifth of the world's crude oil and liquefied natural gas passed through the strait. The prospect of reduced flows pushed crude and gas prices higher, raising the likelihood that inflation will be stronger and more persistent than investors had expected only days earlier. How energy feeds into inflation and rates Higher oil and petrol costs tend to show up quickly in consumer price measures. Data for March showed US inflation rose at the fastest pace in nearly four years, the Bureau of Labor Statistics said, with a record jump in gasoline prices accounting for about three-quarters of the month-on-month increase. That pattern makes central banks more likely to delay rate cuts — and could even prompt further hikes — which is broadly negative for a non-yielding asset such as gold. "Events over the weekend clearly put the fragile ceasefire at risk and likely prolong the conflict," said Paras Gupta, head of discretionary portfolio management in Asia at Union Bancaire Privée. "Price movements in gold were less exaggerated than earlier in the war, but the real test will come when London wakes up later on Monday." Investor flows and liquidity Gold has been pulled in two directions since strikes began at the end of February. Early on, a liquidity squeeze forced some investors to sell bullion to cover losses elsewhere, pushing prices down. More recently, markets focused on slowing global growth, which helped bullion recover some losses because slower growth may encourage central banks to cut rates. Those competing dynamics explain the metal's volatility. Daniel Hynes, senior commodity strategist at ANZ Banking Group Ltd, said he expected the metal to test recent lows but still find some support at current levels. "I suspect gold could threaten last week’s low of US$4,650 but ultimately hold at these levels," Hynes said. Liquidity conditions remain a risk. When tensions spike, some investors sell the easiest assets first, and that behaviour pushed gold down more than the scale of the geopolitical risk might otherwise imply during the early weeks of the conflict.

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Spot gold was trading at US$4,723.55 an ounce at 10:01 a.m. in Singapore, market data showed.

This article was created with AI assistance.