Gold prices tumbled on Monday, falling as much as 3% to near $5,015 an ounce, as a strengthening U.S. Dollar and rising oil prices fueled concerns about persistent inflation and the potential for delayed interest rate cuts by the Federal Reserve.
The decline in gold followed a surge in crude oil prices, with Brent futures briefly approaching $120 a barrel amid ongoing supply concerns linked to the escalating conflict in the Middle East. Producers in the Persian Gulf region have reportedly curbed output, exacerbating anxieties over energy costs. The dollar index climbed as much as 0.7% alongside the oil price increase, further pressuring gold.
Analysts at Oversea-Chinese Banking Corp. Noted that gold often serves as a source of liquidity during periods of market stress, with investors sometimes selling the precious metal to raise cash. However, Christopher Wong, a strategist at the firm, also suggested that geopolitical uncertainty typically underpins demand for safe-haven assets like gold on any dips.
The inflationary pressures stemming from higher oil prices are complicating the outlook for monetary policy. The Federal Reserve is widely expected to hold interest rates steady at its upcoming meeting on March 17-18. Economists are increasingly anticipating that any potential rate cuts are unlikely to occur until June or July of 2026, as the central bank prioritizes controlling inflation.
Fed Governor Christopher Waller acknowledged the uncertainties surrounding the conflict in the Middle East and its potential impact on oil prices, but indicated that the recent rise in oil prices might be a “one-off event” not requiring an immediate policy response. However, he also left open the possibility of a response should the conflict persist and oil prices continue to climb.
The weakness in the U.S. Labor market, as indicated by a decline of 92,000 payrolls in February and a rise in the unemployment rate to 4.4%, could potentially weigh on the dollar and provide some support for gold. However, the dominant market narrative remains focused on inflation risks and the prospect of higher-for-longer interest rates.
Gold’s decline occurred as the war in the Middle East entered its tenth day, with no immediate resolution in sight. The U.S. Is reportedly considering options related to Iran, including a potential operation to secure its uranium, though details remain unclear. The U.S. Treasury is also facing challenges in complying with a judge’s order regarding tariff refunds.
