Dubai gold drops to April low as oil surge hits bullion

Dubai: Gold prices in Dubai fell to their lowest level this month on Wednesday afternoon, extending a three-session decline as higher oil prices, rising bond yields and a firmer interest-rate outlook weighed on bullion.

At 2.39 pm, 24K gold stood at Dh550 per gram, down from Dh554.75 earlier in the morning. The 22K variant fell to Dh509.50 from Dh513.75 over the same period, giving jewellery buyers a lower entry point after a volatile April.

The drop marks a clear turn from the mid-month rally, when 24K gold reached Dh588 on April 17 and 22K touched Dh544.50. Since then, 24K has fallen Dh38 per gram, while 22K is lower by Dh35 per gram. The latest afternoon rates are also below the opening levels seen on April 1, when 24K was priced at Dh573 and 22K at Dh530.75.

That means Dubai gold has moved from early-month strength to a mid-month peak and then into a late-month correction, with the precious metal giving back the gains built during the earlier phase of geopolitical stress.

Oil shock changes the gold trade

The decline in gold comes even as geopolitical risks remain high, a pattern that may look unusual for buyers who normally expect bullion to rise during periods of tension. The reason lies in how the conflict is feeding through global markets.

Higher crude prices, driven by stalled US-Iran negotiations and the continued closure of the Strait of Hormuz, are raising concerns that energy costs could keep inflation elevated. That makes central banks more cautious and supports bond yields and the US dollar, both of which tend to pressure gold because the metal does not pay income.

Tony Sage, CEO of Critical Metals, said gold has slipped to monthly lows because the oil shock is changing expectations around monetary policy.

“Gold declined for a third consecutive session on Wednesday, falling to monthly lows as rising oil prices and a firmer interest rate outlook weighed on the metal,” he said.

The logic is that when investors believe inflation will stay higher for longer, they also assume interest rates may remain elevated or even rise further. That increases the opportunity cost of holding gold, especially when yields on government debt are rising.

Hormuz remains the key risk

Global bullion extended its decline on Wednesday, falling as much as 0.9% to trade near $4,557 an ounce after losing 2.4% over the previous two sessions. Investor focus remains on potential US-Iran talks, while the indefinite closure of the Strait of Hormuz continues to disrupt energy markets and lift inflation risks.

The US has signalled that it will maintain a naval blockade of Iranian ports, seeking to restrict Tehran’s oil exports and push it back toward negotiations. Mediators in Pakistan expect Iran to submit a revised proposal in the coming days, according to CNN.

Sage said the stalled talks and the Hormuz closure have driven crude higher, “reinforcing concerns that elevated energy costs could translate into broader inflationary pressures.” That, in turn, has strengthened the dollar and Treasury yields, adding pressure on non-yielding assets such as gold.

The conflict has created an unusual setup for bullion. Gold still carries support from geopolitical risk, but the inflation channel is now pulling in the opposite direction by making central banks less willing to ease policy.

Central banks may decide the next move

Rate decisions in the US, Europe, the UK and Canada are now central to gold’s next move. The Federal Reserve is expected to keep rates unchanged, but markets will be watching the tone of Fed Chair Jerome Powell closely for any signal that energy-driven inflation is becoming a bigger concern.

The Bank of Japan held its benchmark rate at 0.75% on Tuesday, although a split vote increased expectations that a rate hike could come in June. That has added to the sense that major central banks are becoming more cautious as oil prices climb.

“Central banks are increasingly factoring in the inflationary impact of the conflict, with policymakers signalling readiness to act if price pressures persist,” Sage said, adding that any more hawkish stance could leave gold under pressure in the near term.

That matters for Dubai buyers because local gold prices closely track global bullion and currency movements. Any strengthening in the dollar or further rise in yields could keep pressure on the metal, while signs of progress in US-Iran talks may reduce the war-risk premium further.

- With inputs from Bloomberg.