Oil Surge Leaves Gold Struggling Amid Higher Interest Rates

The price of Brent crude oil, UKOIL, has surged above $100 a barrel after US President Donald Trump rejected an Iranian proposal linked to reopening the Strait of Hormuz. This development raises concerns about prolonged disruption to global energy supplies and has lifted oil prices.

However, gold, often considered a safe-haven asset, is not reacting as expected. Spot gold XAUUSD dropped more than 2% on Monday, falling below $4,200, despite the rising tensions in the Middle East.

The relationship between gold and interest rates is key here. Gold pays no coupon or interest, so when government bonds offer attractive yields, holding bullion comes with a higher opportunity cost. With central banks fighting inflation and raising interest rates, the gold trade looks less appealing.