Gold prices drop on Iran peace talk hopes, firm dollar; downside limited

Gold prices declined on Tuesday, pressured by a slightly stronger dollar and investor anticipation regarding potential peace talks between the US and Iran following recent weekend tensions.

The US dollar slightly strengthened on Tuesday, which makes commodities priced in the greenback more costly for those holding other currencies.

According to reports, Iran is considering participating in peace talks with the United States in Pakistan.

This comes as a two-week ceasefire nears its end and follows moves by Islamabad to lift a US blockade of Iran's ports, which had been a major hurdle to Tehran rejoining peace efforts.

The week began with gold on the defensive, primarily due to renewed inflation worries fueled by rising oil and gas prices.

Fundamentals push gold lower

These inflationary expectations, strengthened by continued disruption risks near the Strait of Hormuz, which support energy markets, are currently acting as a short-term challenge for gold.

“We see this capping upside in the short term, though downside risks appear limited,” Ewa Manthey, commodities strategist at ING Economics, said in a note.

“Elevated geopolitical tensions and continued uncertainty around Hormuz should underpin haven demand,” she added.

At the time of writing, the COMEX gold contract was at $4,803.91 per ounce, down 0.5% from the previous close.

Investors reassessed supply risks, leading to a fall in oil prices.

This is based on expectations that peace talks this week will increase the supply flow from the key Middle East producing region.

The appeal of gold has lessened, with prices falling about 8% since the US and Israel launched strikes on Iran in late February.

While gold is traditionally seen as an inflation hedge, high interest rates are currently making yield-bearing assets more attractive.

Higher crude prices contribute to inflation by increasing transportation and production costs.

The focus is now on the US Senate confirmation hearing for Federal Reserve chair nominee Kevin Warsh, scheduled for Tuesday.

Any indication of a hawkish stance from Warsh could intensify the pressure on gold prices.

“Near-term price action is likely to remain volatile amid shifting expectations around central bank policy, real yields and persistent geopolitical uncertainty,” ING’s Manthey said.

China’s record demand drives silver surge

Meanwhile, in March, China's silver imports reached a record high of approximately 836 tonnes, significantly surpassing the 10-year March average of roughly 306 tonnes.

The surge in silver imports, as per Chinese customs data, was driven by robust demand from both retail investors and the solar sector, mirroring trends in other precious metals.

Strong domestic demand earlier in the year caused Chinese silver prices to exceed international market prices, thereby initiating arbitrage flows.

Retail momentum has softened following the retreat of silver prices from the record highs they reached in January.

Silver reached its highest point in over a month on Monday, briefly trading above $83 an ounce.

This upward movement was driven by a weaker US dollar and increased investor appetite for risk assets following US President Donald Trump's announcement that Iran would reopen the Strait of Hormuz.

However, prices have fallen since then, and were trading around $78.730 per ounce, down 1.6%.