Gold plunge deepens as soaring oil prices ignite inflation fears again

Gold extended its retreat on Monday as investors weighed a stronger US labour market, rising Treasury yields and another jump in oil prices, a combination that has complicated bullion’s usual safe-haven appeal.

Spot gold fell 0.4% to $4,313.11 an ounce by 0302 GMT, adding to Friday’s roughly 3% slide that pushed prices to their lowest level since March 24.

US gold futures for August delivery dropped 0.7% to $4,336.30.

The move reflected a market that is no longer treating geopolitical risk as automatically bullish for bullion.

Instead, traders are focusing on whether the latest energy shock could keep inflation elevated and force the Federal Reserve to tighten policy again before the end of the year.

Rate bets overshadow haven demand

Gold typically draws support during periods of conflict or market stress, but its lack of yield becomes a disadvantage when interest-rate expectations move higher.

That trade-off was back in focus after the benchmark 10-year US Treasury yield rose, following a jump to a two-week high in the previous session.

A strong May jobs report sharpened the pressure as the US economy delivered a third straight month of solid employment gains, suggesting the labour market has regained momentum after last year’s soft patch.

For the Fed, that gives policymakers more room to keep policy restrictive, or even consider another rate increase, if energy-driven inflation proves persistent.

Markets are now pricing a 72% chance of a Fed rate hike by December, according to CME Group’s FedWatch tool.

Cleveland Fed President Beth Hammack also said on Friday that the labour market appeared close to full employment, while inflation remained high enough to keep tighter policy on the table.

Oil jump changes the inflation trade

The Middle East risk premium added another layer of complexity.

Israel said it had struck military targets in western and central Iran on Monday, even after US President Donald Trump reportedly urged Israeli Prime Minister Benjamin Netanyahu to avoid further attacks.

Oil prices rose more than $3 a barrel as traders assessed the risk of a wider conflict and possible supply disruptions.

Higher crude prices can support gold when investors are primarily worried about inflation.

This time, however, the inflation channel is also feeding directly into expectations for higher rates, limiting bullion’s appeal.

That tension explains why gold struggled despite a backdrop that would normally favour defensive assets.

Investors are not simply buying protection against war or inflation. They are also adjusting to the possibility that the Fed may respond to those risks with tighter monetary policy.

Precious metals weaken broadly

The weakness was not limited to gold as spot silver fell 0.4% to $67.56 an ounce, while platinum lost 0.5% to $1,767.15. Palladium was little changed at $1,225.66.

For bullion traders, the next phase will depend on whether the oil rally becomes a sustained inflation shock or fades as a geopolitical risk premium.

A further rise in yields would likely keep pressure on gold, while any sign of de-escalation in the Middle East could remove one of the market’s few supportive factors.

Until then, gold remains caught between two competing forces: demand for safety during a widening conflict, and a rate market that is increasingly willing to bet the Fed has not finished tightening.