FX.co ★ Gold Holds Decline on Inflation Worries

Gold traded just below $4,600 an ounce on Wednesday, stabilizing after a nearly 2% drop in the previous session to a one-month low, as stalled US–Iran peace talks and the continued closure of the Strait of Hormuz stoked fears of rising inflation. President Donald Trump said Iran has urged the US to lift its naval blockade of the strait while negotiations to end the conflict are ongoing, with the disruption already tightening energy supplies from the Middle East.

The shutdown of this critical shipping lane has halted roughly 20% of global oil flows, triggering what the IEA has described as the largest supply shock on record and amplifying inflationary pressures. In response, investors have increasingly priced in the risk that central banks may keep interest rates higher for longer, or even resume tightening, which has weighed on demand for non-yielding bullion.

Earlier this week, the Bank of Japan left its policy rate unchanged, while central banks in the US, the euro area, the UK, and Canada are all scheduled to announce their policy decisions later this week.