Gold prices dropped sharply on Monday, May 18 hitting their weakest point in over a month as escalating geopolitical tensions in the Middle East and a spike in crude oil prices unsettled global investors. The decline in bullion prices reflected growing concerns that persistent inflation risks could force central banks to maintain tighter monetary policy for longer than expected. Spot gold slipped 1.1 per cent to $4,488.99 per ounce, marking its lowest level since March 30. US gold futures for June delivery also moved lower, falling 1.5 per cent to settle at $4,493.30.
The pressure on the precious metal intensified after oil prices extended gains following a drone strike targeting a nuclear power facility in the United Arab Emirates. The situation further escalated after Saudi Arabia intercepted three drones, while US President Donald Trump issued a stern warning to Iran. The developments weakened hopes for a resolution to the ongoing US-Israeli conflict and heightened fears of a broader regional crisis.
Inflation Fears Shift Investor Focus
As crude prices climbed to a two-week high, markets grew increasingly worried that rising energy costs could fuel global inflation once again. This has strengthened expectations that major central banks, particularly the US Federal Reserve, may keep interest rates elevated or even consider additional tightening measures later this year.
Traders are now factoring in a higher likelihood of a potential rate increase before the end of 2026. According to CME’s FedWatch tool, markets currently see a 50 per cent chance of another Federal Reserve hike by December. Investors are also awaiting the release of minutes from the Fed’s April meeting later this week for clearer signals on the direction of US monetary policy.
India’s Forex Reserves Rebound Strongly
Amid the global uncertainty, India’s foreign exchange reserves posted a notable recovery. Data for the week ended May 8 showed reserves rising by $6.295 billion to reach $696.988 billion, bouncing back after the sharp decline recorded in the previous week.
A major contributor to the rebound was a strong increase in gold holdings. India’s gold reserves surged by $5.637 billion to $120.853 billion, underlining bullion’s growing strategic role in the country’s reserve portfolio during periods of heightened market volatility.
Foreign currency assets, which remain the largest component of India’s reserves, also registered an increase of $562 million to $552.387 billion.
The latest recovery follows a decline from the record high of $728.494 billion touched in February, when escalating Middle East tensions pressured the rupee and triggered intervention from the Reserve Bank of India.
Additional RBI data revealed that Special Drawing Rights rose to $18.873 billion, while India’s reserve position with the IMF climbed to $4.875 billion.