Gold prices were largely steady on Monday as investors weighed whether last-minute diplomacy could prevent a further escalation in the U.S.-Israeli war with Iran ahead of a deadline tied to the reopening of the Strait of Hormuz. The metal briefly weakened earlier in the session, but then stabilized as markets balanced geopolitical risk against the possibility that prolonged conflict could keep interest rates higher for longer.
Spot gold was little changed at $4,669.27 an ounce after earlier falling about 1%, while U.S. gold futures rose 0.3% to $4,694.50. The muted overall move suggests that investors are not treating gold as a one-way safe haven trade at the moment. Instead, they are trying to judge whether the conflict will escalate into a broader supply shock that lifts inflation and limits the ability of central banks to ease monetary policy.
That tension is crucial for gold. The metal typically benefits from geopolitical stress and inflation fears, but it also tends to lose appeal when interest rates stay elevated because, unlike bonds or cash, it generates no yield. The market is therefore facing two opposing forces at once, and that is helping explain the hesitant price action.
Diplomacy and threat escalation are moving markets at once
On the eve of a U.S. deadline, Washington and Tehran were still weighing a framework for ending the five-week conflict, even as Iran resisted pressure to reopen the Strait of Hormuz quickly. President Donald Trump has warned that Tehran would face severe consequences if no agreement is reached by the end of Tuesday, keeping markets on edge as investors try to assess whether the crisis is nearing a turning point or moving toward a more dangerous phase.
The importance of the Strait of Hormuz remains central to that calculation. If negotiations fail and the disruption around the waterway continues, markets are likely to focus less on diplomacy and more on the impact on oil supply. That would immediately raise the stakes for inflation, monetary policy, and global risk sentiment.
As a result, gold is no longer reacting only to war headlines. It is reacting to what those headlines could mean for energy markets, bond yields, and the broader direction of interest rates in the United States and beyond.
Oil and inflation are complicating gold’s safe-haven appeal
Oil prices edged higher in choppy trading on Monday and have already risen sharply since the conflict began. That matters because sustained gains in crude would feed directly into inflation concerns, particularly if the fighting drags on and tighter supply conditions persist. In that environment, the usual safe-haven case for gold becomes more complicated.
Analysts say that if the war continues and energy prices keep climbing, central banks, especially the Federal Reserve, may have less room to cut interest rates. In a more extreme scenario, persistently higher energy costs could even revive discussion of additional tightening. That would be a difficult backdrop for gold, which usually performs better when rate expectations are falling.
This is why the market response has been restrained rather than explosive. Gold still offers protection against geopolitical instability and inflation, but those advantages can be offset if the price of that instability is a higher interest-rate environment.
The Fed is becoming just as important as the war
Investor attention is now split between the Middle East conflict and the U.S. monetary policy outlook. Several major data points and policy signals are due in quick succession, giving markets more information on whether inflation risks are becoming entrenched. Minutes from the Federal Reserve’s March meeting are due on Wednesday, followed by Personal Consumption Expenditures data on Thursday and the Consumer Price Index on Friday.
Those releases matter because they could reinforce or challenge the view that the Fed will remain on hold. The central bank kept rates unchanged last month, and a majority of traders now see no chance of a rate cut this year. That shift in expectations has become one of the most important forces shaping precious metals.
If the data confirms that inflation is staying firm while oil remains elevated, gold may struggle to break decisively higher even with geopolitical risk still intense. If, however, economic data weakens or the conflict begins to ease, the market could start reassessing both the inflation outlook and the likelihood of future policy moves.
Gold is caught between fear and yield pressure
The current market setup leaves gold in an unusual position. On one side, it retains its traditional role as a hedge against war, instability, and inflation. On the other, it faces pressure from the prospect of persistently high interest rates, which reduce the relative attractiveness of holding a non-yielding asset.
That conflict between fear and yield is likely to define the next move in the metal. If ceasefire negotiations fail and the Hormuz dispute worsens, geopolitical buying could return quickly. But if the resulting oil shock pushes rates expectations even higher, part of that support may be neutralized.
For now, the market is waiting. Gold’s stability on Monday reflected a broader sense that the next decisive move will depend not only on whether the war escalates, but also on whether that escalation changes the path of inflation and central bank policy. Until that becomes clearer, the metal is likely to remain caught between its safe-haven status and the heavy drag of higher rates.
