(Bloomberg) — Gold sank as Iran warned of retaliation against energy infrastructure in the Middle East following Israeli airstrikes, raising the prospect of a supply crunch that could keep interest rates higher for longer.
Bullion tumbled as much as 3.4% to its lowest level in more than a month after Iranian state TV reported that an oil plant and a gas field had been hit. The incidents mark an escalation, as Iran’s energy infrastructure has largely been spared during the conflict. Iran published a list of Gulf energy sites it may target in retaliation. Crude futures surged.
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While the Federal Reserve is expected to keep rates unchanged at its policy meeting later Wednesday, bullion has been weighed down in recent weeks by concerns that higher energy prices could accelerate inflation and deter the central bank from cutting rates further. Higher borrowing costs are typically a headwind for precious metals, which don’t pay interest.
Gold is still up more than 10% this year, aided by geopolitical risks and by threats to the Fed’s independence that are supporting demand.
Concerns about stagflation — a combination of slower growth and high inflation — could be supportive of bullion in the longer term as investors look for alternative stores of value.
Spot gold fell 2.9% to $4,859.24 an ounce by 1:39 p.m. in London, the lowest since Feb. 18. Silver lost 2.9% to $76.98 an ounce. Platinum and palladium also retreated. The Bloomberg Dollar Spot Index jumped 0.3%.
–With assistance from Preeti Soni.
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