- On Monday, spot gold (GOLD) fell by 0.7% to $4,794.21 per ounce, reaching its lowest level since April 13th. The June delivery of US gold futures (GOLD) simultaneously dropped by 1.3% to $4,813.70, mainly due to the strengthening of the US dollar index (DXY).
- The repeated closure of the Strait of Hormuz led to the lowest levels of shipping traffic to and from the Gulf region. The sharp rise in crude oil prices rekindled market concerns about long-term inflation, which in turn pushed up the U.S. benchmark 10-year Treasury yield (US10Y) by 0.6%.
- The spot consumption side and industrial precious metals sector showed a comprehensive pressure trend. Jewelry consumption during India's key gold buying festival was sluggish due to high prices. Spot silver (XAGUSD1!), platinum (PL1!), and palladium (XPDUSD1!) recorded declines of 1.3%, 0.8%, and 0.4%, respectively.
Structural Reversal in War Trading Logic
On this trading day, the pricing logic of the precious metals market displayed significant divergence characteristics. Typically, geopolitical tensions in the Middle East would directly trigger buying of traditional safe-haven assets. However, in the current macro framework, the transmission path of this risk aversion sentiment has changed. According to the assessment of Tastylive's Global Macro Director, with the market's anticipated US-Iran ceasefire agreement facing collapse last week, the market has reactivated the war trading dynamics since the conflict erupted. However, as this conflict manifested directly through the blockade of the Strait of Hormuz, the rise in crude oil prices caused by energy supply disruptions directly strengthened macro funds' expectations for a rebound in core inflation. In this complex transmission chain, the traditional safe-haven attributes of gold were hedged by the pressure of rising real interest rates, and funds tended to flow into fixed-income assets that could provide yields.
Suppression of Non-Income Producing Assets by Real Interest Rates
The significant rise in the U.S. benchmark 10-year Treasury yield has become the core macro variable suppressing gold prices. When risk-free yields rise, the relative holding cost of assets like gold, which do not generate interest, increases significantly. Meanwhile, the continued strengthening of the US dollar index makes gold priced in dollars more expensive for non-dollar currency holders, which marginally weakens the support for the buying side of the international spot market. Since the US and Israel launched airstrikes on Iran in late February, gold prices have adjusted down by approximately 8%, a magnitude that fully reflects the market's repricing of the possibility that global interest rates may remain elevated for a longer time. If the stickiness of oil-driven inflation is confirmed by subsequent economic data, gold prices may find it difficult to escape the valuation correction cycle dominated by real interest rates in the short term.
Shrinkage of Uncertainty Premium in Geopolitical Games
The incident over the weekend with the US seizing an Iranian cargo ship attempting to break the blockade, followed by Iran's retaliatory statements, makes it possible that the ceasefire agreement between the two countries may not even last until the scheduled effective date. Iran explicitly stated it would not participate in a second round of negotiations that the US hoped to initiate before the ceasefire period expired on Tuesday. This diplomatic deadlock theoretically should provide an uncertainty premium for gold, but under the combined pressure of a strong dollar and high interest rates, gold bulls chose to stand by and observe. The core dilemma of the market has now shifted from a simple geopolitical conflict spillover to the stagnation risk that the conflict may trigger. In this extreme macro quadrant, the shift in liquidity preference temporarily allows gold's financial attributes to give way to the dollar's dual attributes as a settlement and safe-haven currency.
Verification of Physical Consumer Market Data
While the macro funding environment is under pressure, the micro consumer base for spot gold also shows clear weakness. During India's traditional key gold buying festival, jewelry consumption at the end-user level was severely suppressed due to the cumulative increase in gold prices and the absolute prices being at historically high ranges. Sunday's market feedback indicates that overall gold consumption remains sluggish. Although there was a moderate rebound in demand for investment gold bars, this increment was far from offsetting the overall drag brought about by weak jewelry consumption. Additionally, other precious metals with strong industrial attributes were not spared, with spot silver dropping to $79.75 per ounce, and platinum and palladium falling back to $2,086.90 and $1,553 respectively. If the global manufacturing sector slows down against the backdrop of rising energy costs, the industrial demand outlook for silver and platinum group metals may face further downward pressure.
