Gold prices took a dip on Monday following former President Donald Trump's dismissal of Iran's response to a peace proposal. This move heightened concerns over inflation and interest rate expectations in a market already strained by the ongoing conflict in the Middle East.
According to Reuters, spot gold fell by 0.5%, reaching $4,692.49 per ounce, while June futures declined by 0.9%, settling at $4,686.20 per ounce.
The catalyst for this decline was Trump's rejection of Iran's counterproposal, which was announced on Sunday. Iran had suggested ending hostilities on all fronts, particularly in Lebanon, and demanded compensation for war damages. Shortly after, Trump rejected the offer.
The hostilities between the United States and Iran have been ongoing for about ten weeks, following the launch of Operation Epic Fury by the US and Israel against Iranian nuclear sites in late February.
Iran's response included closing the Strait of Hormuz, which sent Brent crude oil prices surging from $70 to over $126 per barrel, pushing the annual inflation rate in the US to 3.5% in March 2026, the highest level in almost three years.
"Concerns over inflation have intensified after the US dismissed Iran's response, and the restrictions in the Strait of Hormuz are adding pressure, affecting gold prices, as higher inflation could keep interest rates elevated," explained Jim Wyckoff, a market analyst at American Gold Exchange.
Gold is traditionally seen as a hedge against inflation, but high interest rates can negatively impact the precious metal by increasing the opportunity cost of holding non-yielding assets.
The Federal Reserve currently maintains its benchmark rate between 3.5% and 3.75%. Global brokerage firms have lowered their rate cut expectations for 2026, with predictions ranging from some easing to no adjustments at all.
Tim Waterer, chief market analyst at KCM Trade, summarized the situation: "We're witnessing a fading hope for an imminent peace deal, and gold is feeling the pinch from the renewed surge in crude prices."
This week, the US will release the April Consumer Price Index data, following an employment report that showed stronger-than-expected job creation.
Markets are also closely monitoring Trump's upcoming visit to China, where he will meet with President Xi Jinping to discuss issues related to Iran, Taiwan, artificial intelligence, and nuclear weapons.
An additional factor pressuring the market was Indian Prime Minister Narendra Modi's call for citizens to refrain from buying gold for a year to conserve the country's foreign exchange reserves.
India imported nearly $72 billion worth of gold in the fiscal year 2025-26, making it the world's second-largest consumer of the metal. The announcement led to a sharp decline in shares of major Indian jewelers: Sky Gold plummeted 12%, Kalyan Jewellers fell 8.81%, and Titan dropped 6.19%.
Gold hit an intraday low of $4,648.30 per ounce, far from the all-time high of $5,111.07 reached on January 27, 2026, when the conflict with Iran caused an unprecedented surge in the metal's price.
Among other metals, silver rose as much as 3.1%, trading around $82.84 per ounce.
Gold Market Dynamics and Influencing Factors
What caused the recent decline in gold prices?
The decline was primarily triggered by Donald Trump's rejection of Iran's peace proposal, which increased concerns about inflation and interest rates in an already tense geopolitical environment.
How does the situation in the Strait of Hormuz impact the gold market?
Iran's closure of the Strait of Hormuz led to a spike in oil prices, contributing to rising inflation in the US, which in turn affects interest rate expectations and gold prices.
Why do high interest rates negatively impact gold prices?
High interest rates increase the opportunity cost of holding gold, a non-yielding asset, making it less attractive to investors compared to other income-generating investments.