Hormuz Crisis Sends Gold Prices Below $4600 Per Ounce

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Global gold prices have plunged, dropping below the $4,600 mark per troy ounce and approaching the $4,500 level. A significant decline in quotes occurred during trading on March 19, with the price of the April futures contract on the Chicago Mercantile Exchange (CME) falling by around 8% at one point, reaching $4,505 per ounce, according to RBC.

The price drop is attributed by analysts to a shift in investor expectations regarding global monetary policy. The escalation of conflict in the Middle East has led to a sharp increase in energy prices, exacerbating inflation risks. As a result, market participants are now factoring in a longer period of high interest rates from the U.S. Federal Reserve and other major central banks.

For gold, this scenario is traditionally seen as negative: the precious metal does not yield interest, so its appeal diminishes as the yield on alternative instruments rises.

Meanwhile, energy markets showed the opposite trend. Following mutual strikes by Iran and Israel on key energy infrastructure in the Persian Gulf region, Brent crude oil prices surged by more than 10%, exceeding $119 per barrel. Exchange gas prices also spiked sharply, rising by more than a third during trading to $891 per thousand cubic meters.

Adding to the pressure on the precious metals market was a steady outflow of funds from gold-backed exchange-traded funds (ETFs). This instrument is widely used by institutional and retail investors in the West, and the reduction in investments signals a decline in interest in the metal amid high borrowing costs.

According to Patrick Armstrong, investment director at Plurimi Wealth LLP, gold is gradually losing its reputation as a purely safe-haven asset and is increasingly being seen by market participants as a tool for speculative trading.

Despite the current decline, gold prices had hit a historic high in late January, reaching $5,626.8 per ounce amid geopolitical tensions and expectations of an imminent easing of monetary policy. Silver also set a record at that time, with its price rising to $121.8 per ounce.