Gold prices extended their decline in Asian trade on Monday, falling to fresh two-month lows as a stronger U.S. dollar and rising bond yields offset safe-haven demand despite escalating tensions in the Middle East.
Spot gold dropped 2.7% to $4,376.46 per ounce in Asian trade, after briefly slipping below the $4,350 level earlier in the session.
The move marks a continuation of last week’s sharp sell-off, during which the metal lost more than 10.4%.
The decline comes as the U.S. dollar index (DXY) strengthens alongside rising U.S. Treasury yields, driven by growing expectations that inflation pressures linked to the conflict involving Iran could delay or limit interest rate cuts.
Geopolitical developments have added complexity to the outlook. Escalating tensions involving the United States, Iran and Israel have heightened concerns over energy supply disruptions, fuelling inflation fears and reinforcing expectations of tighter monetary policy globally.
Central banks have adopted a more hawkish stance in response. The Federal Reserve raised its inflation outlook and signalled limited scope for rate cuts, while the Bank of England and European Central Bank have indicated a willingness to tighten policy further if price pressures persist.
The Bank of Japan has also maintained a bias toward policy normalisation, citing risks from rising oil prices.
These developments have supported elevated Treasury yields and sustained demand for the U.S. dollar, both of which continue to pressure gold prices.
Despite the recent losses, geopolitical risks remain a key factor limiting further downside.
Markets were unsettled again after renewed threats between the U.S. and Iran over the Strait of Hormuz, alongside reports of expanded military activity.
The Israel Defense Forces said it had launched a broad wave of strikes targeting Iranian infrastructure in Tehran, while reports suggested the U.S. was considering further military options in the region.
