Gold Declines as Oil and the Dollar Rise Amid Geopolitical Uncertainty

Gold prices retreated in both local and global markets during Monday's trading, driven by rising oil prices and a strengthening US Dollar. This trend has heightened fears of persistent inflationary pressures and tighter US monetary policy, amid uncertainty regarding a potential agreement between the United States and Iran, according to a report by the "Marsad Al Dahab" for Economic Studies.

The Marsad Al Dahab stated that local gold prices dropped by approximately 35 EGP compared to last week's close, with 21-karat gold reaching 6,970 EGP per gram. Meanwhile, global spot gold fell by about $52 to reach $4,664 per ounce, based on World Gold Council data at the time of the report's preparation.

The report added that 24-karat gold recorded approximately 7,966 EGP per gram, 18-karat gold reached 5,974 EGP per gram, and the gold coin (Genieh) was valued at 55,760 EGP. It further explained that local gold prices remain nearly 75 EGP higher than the global price, supported by a relative improvement in demand levels within the Egyptian market.

The report noted that gold had achieved strong gains last week, with local prices rising by 0.6% (about 45 EGP). 21-karat gold opened at 6,960 EGP and closed at 7,005 EGP, while the global ounce rose by 2.2% ($102), moving from $4,614 to $4,716 within a single week.

The current pressure on gold resulted from the rise of the US Dollar and oil prices, which revived fears of returning global inflation and reduced gold's appeal as a non-yielding asset, especially with increasing expectations that the Federal Reserve will continue its hawkish monetary policy.

Geopolitical uncertainty continues to play a major role in market movements following the stalling of efforts to reach an agreement between the US and Iran regarding the nuclear file and the reopening of the Strait of Hormuz. These tensions have also contributed to the strength of the US Dollar as a global safe haven.

The report highlighted that Brent crude prices exceeded $103 per barrel, driven by fears of shipping disruptions in the Strait of Hormuz due to ongoing regional conflict. This has fueled concerns of a new inflationary wave that might prompt the Federal Reserve to keep interest rates high for a longer period.

Recent US labor market data supported this outlook after the Non-Farm Payrolls report showed the US economy added approximately 115,000 jobs in April, exceeding market expectations, while the unemployment rate stabilized at 4.3%. The report indicated that markets now price in a more than 20% chance that the Federal Reserve will raise interest rates by an additional 25 basis points before year-end, according to the CME Group's FedWatch Tool.

The report emphasized that the continuous rise in oil prices is one of the most prominent factors pressuring gold currently, as it feeds global inflation and pushes central banks toward maintaining high interest rates, thereby reducing gold's attractiveness as a hedging tool. It also noted that gold prices have lost more than 11% since the outbreak of war in late February, affected by high energy prices and strict US monetary policy.

The Marsad Al Dahab indicated that global markets are awaiting US inflation data this week, primarily the Consumer Price Index (CPI) and the Producer Price Index (PPI), alongside retail sales data and statements from Federal Reserve members. These will have a direct impact on the movements of the Dollar and gold prices. Additionally, markets are closely following the anticipated meeting between US President Donald Trump and Chinese President Xi Jinping, with expectations to discuss geopolitical and economic issues affecting global markets.

The report concluded by stressing that gold may face further downward pressure if US inflation data comes in higher than expected, which could lead the Federal Reserve to maintain high interest rates for longer, potentially reflecting negatively on the precious metal's global performance in the coming period.