Gold (XAU/USD) traded broadly flat on Monday, consolidating around $5,012 after briefly falling to $4,967, its lowest level in over three weeks, as the US Dollar eased following its recent rally. The metal's upside remains capped by oil-driven inflation concerns stemming from the ongoing US-Iran war, which has raised the risk that central banks will keep borrowing costs elevated for longer despite heightened geopolitical tensions [1]. Meanwhile, Silver (XAG/USD) traded around $79.70, down 1.12% on the day, as investors adopted a cautious stance ahead of this week’s monetary policy announcements from major central banks, particularly the Federal Reserve (Fed) [2].
Shipping disruptions in the Strait of Hormuz are a key concern as the US-Iran war enters its third week. Oil prices have surged, with Brent crude up about 36% and West Texas Intermediate (WTI) up around 42% from pre-conflict levels, following US-Israel joint strikes on Iran. The United States conducted airstrikes on Iran’s Kharg Island, targeting military sites, and President Donald Trump warned of potential strikes on Iran’s oil infrastructure if Tehran interferes with shipping. Iran’s Foreign Minister Abbas Araghchi stated the Strait of Hormuz would be closed only to "enemies and those supporting their aggression" [1][2]. Washington has suggested the conflict could end within weeks and discussed forming an international coalition to secure shipping, but ongoing tensions continue to inject uncertainty into financial markets [2].
Higher energy costs are feeding into consumer inflation, raising the risk of stagflation and forcing major central banks to reassess their monetary policy outlook. Investors have scaled back expectations for Fed interest rate cuts, with the probability of a 25-basis-point cut in June falling to 23.6% from 51.2% a month ago, and markets now pricing in only one rate cut by year-end compared to earlier expectations for two [1]. Markets widely expect the Fed to keep its benchmark interest rate unchanged at 3.50%-3.75% at Wednesday’s meeting, marking the second consecutive pause following the previous easing cycle [1][2].
The uncertain geopolitical backdrop and elevated oil prices are shaping sentiment in the precious metals market. While higher interest-rate expectations increase the opportunity cost of holding non-yielding assets like Silver and Gold, safe-haven demand amid geopolitical risks may cushion downside moves, particularly for Silver [2]. Traders are awaiting the Fed’s interest-rate decision and updated Summary of Economic Projections (SEP) for signals on the future path of rates, with several other major central banks also set to announce policy decisions this week [1][2].
CONCLUSION
Gold remains resilient near $5,000 while Silver faces downward pressure as oil-driven inflation and geopolitical tensions weigh on market sentiment. Investors are closely watching central bank decisions, especially the Fed, for guidance on interest rates amid persistent inflation risks. The ongoing uncertainty in the Middle East and elevated energy prices are likely to keep precious metals volatile in the near term.