Gold prices dropped to less than $4,400 an ounce on Monday as they fell for a fourth week. The precious metal fell by 3.8% to near $4,320.30 an ounce as it erases its previous gains.
This comes as the U.S.-Iran war continues to worsen. President Donald Trump recently threatened to strike Iran’s power plants if they did not reopen the Strait of Hormuz. In response, Iran threatened to attack important US and Israeli installations in the region if its energy facilities are hit.
Last time, the value of gold declined as sharply as this in a week was in 1983. In that year, oil-producing countries in the Middle East sold their gold reserves as their oil revenues declined. The same region has caused a similar crash in the market as it did over 40 years ago.
The key question now is, how did this derail gold’s earlier bullish run? While we have enjoyed record highs in the asset since last year, it is now falling faster than expected. In other words, how exactly are the Middle East oil tensions actually weighing the precious metal down ?
Why Exactly Do Gold Prices Drop When Oil Tensions Rise
Normally, in times of turmoil, investors tend to invest in gold, as it is expected that it will hold its value in case of a rise in inflation, a fall in currencies, or a crisis.
However, rising energy prices due to the Middle East conflict are causing central banks across the globe to reassess their interest rate outlook. The factor is particularly important because of its impact on assets.
This is mainly because gold does not pay …
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