Oil Price Spikes Trigger a Shift in Gold's Inflation Hedge Role

Spot gold has fallen more than 11% since the U.S.-Israeli war on Iran began on February 28. This decline is driven by a decrease in demand for the non-yielding metal as interest rate expectations shift. Traders now see little chance of a Federal Reserve interest rate cut this year, a reversal from the previous expectation of two cuts. The shift is a result of oil prices jumping above $100 a barrel following the failure of U.S.-Iran peace talks and the U.S. Navy's preparation of a blockade of the Strait of Hormuz. Higher energy prices fuel inflation worries, which limits the scope for monetary easing. As the dollar strengthens, greenback-priced bullion becomes more expensive for other currency holders. Spot gold prices have fallen to $4,694.30 per ounce.