Gold plunges sharply as oil prices surge | Finance

Gold futures fell sharply on Monday, June 1, as geopolitical tensions once again guided market direction. The drop in the precious metal came after a surge in oil prices, which pushed U.S. Treasury yields and the dollar higher. The move followed reports from the Iranian news agency Tasnim that negotiations between the United States and Iran had ended, adding to concerns about energy supply and regional instability.

On the Comex, the metals division of the New York Mercantile Exchange, gold futures for August delivery closed down 1.87% at $4,475.20 per troy ounce. The metal remained confined to a narrow trading range despite the latest escalation in the Middle East.

According to Tasnim, Iranian representatives suspended talks with the United States through intermediaries after Israeli attacks on Hezbollah. The agency also reported that a timeline for blocking the Strait of Hormuz had been established, a development that intensified market anxiety because the waterway is a critical route for global oil shipments. Still, comments from U.S. President Donald Trump suggesting a possible easing of tensions in Lebanon offered some relief to risk assets.

Ole Hansen, chief commodities strategist at Saxo Bank, said the Middle East conflict highlights an important distinction often overlooked by investors: gold’s inflation hedge works differently depending on the source of inflation. He said gold has historically performed best during periods of financial stress or economic weakness, especially when inflation worries are accompanied by falling real yields and a weaker dollar.

In the current environment, however, the inflation shock is being driven by supply-side energy pressures. Rising oil prices are lifting inflation expectations while also pushing yields and the dollar higher, which reduces gold’s appeal. The stronger U.S. currency makes bullion more expensive for buyers using other currencies, while higher yields increase the opportunity cost of holding a non-yielding asset such as gold.

Hansen also pointed to the strong performance of U.S. equities as another factor limiting demand for the metal. In addition, he noted that central banks, especially in energy-importing countries, may need to sell part of their gold reserves to support their currencies in periods of stress, which can add further pressure to prices.

The latest decline shows that gold remains sensitive not only to geopolitical uncertainty, but also to the broader reaction in oil, bond, currency, and equity markets. Even as conflict in the Middle East continues to support safe-haven demand, the combination of higher Treasury yields, a firmer dollar, and shifting expectations around inflation has kept the precious metal under pressure.