By The Capitalist | Markets & Commodities
Gold prices steadied on Monday after falling to their lowest level in more than six weeks, as bargain hunting offset investor concerns that rising oil prices and geopolitical tensions could prolong elevated global interest rates.
Spot gold traded near $4,540 per ounce, recovering from earlier declines after touching its weakest level since late March. U.S. gold futures also remained under pressure, reflecting broader uncertainty around inflation expectations and monetary policy.
The latest weakness in bullion stems from renewed geopolitical instability in the Middle East, which has pushed crude oil prices to a two-week high. Higher energy costs are increasingly fuelling fears of another inflationary cycle, reducing expectations that major central banks — particularly the U.S. Federal Reserve — will ease monetary policy in the near term.
Oil prices climbed following reports of a drone strike that caused a fire at a UAE nuclear facility, according to UAE officials, while regional tensions intensified after Saudi Arabia reportedly intercepted multiple drones and diplomatic efforts involving Iran appeared to stall.
For investors, the concern is straightforward: sustained increases in oil prices risk reigniting inflation globally. In response, central banks may be forced to maintain restrictive interest rates for longer — or even tighten further — diminishing the attractiveness of non-yielding assets such as gold.
Market expectations increasingly reflect this possibility. Traders now see roughly a 50% probability of a U.S. Federal Reserve rate increase before year-end, according to CME FedWatch data, marking a sharp shift from earlier expectations centred on rate cuts.
The broader commodity complex also weakened. Spot silver fell, while platinum and palladium posted declines amid concerns over slowing industrial demand and tighter financial conditions. Meanwhile, India — the world’s largest silver consumer — introduced new restrictions on silver imports to ease pressure on its currency and manage external balances.
What this means for emerging markets
Persistent high oil prices present a dual risk for import-dependent economies: increased inflationary pressure and potential currency weakness. Countries with large fuel import bills, including several in South Asia, may face renewed pressure on external balances if energy prices remain elevated. Rising U.S. yields and a stronger dollar would further tighten global financial conditions.
For Sri Lanka and comparable frontier markets, a prolonged period of elevated commodity prices could complicate inflation management, import costs and monetary stability.
Outlook
Investor attention now turns to the release of minutes from the U.S. Federal Reserve’s April meeting, which may provide clearer signals on whether policymakers view recent inflation risks as temporary or structural. Until then, gold is likely to remain caught between safe-haven demand and pressure from rising yields.
This article was prepared using international market reports and analysis available as of May 18, 2026.
