By Yihui Xie, Preeti Soni and Jack Ryan

(Bloomberg) -- Metals from gold to copper sank in a broad risk-off move, as a war-driven surge in US inflation fueled expectations for higher interest rates.

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Bullion fell as much as 2.2% to near $4,550 an ounce, and is down around 3.4% since last Friday. Two-year Treasury yields climbed to the highest level in months, while the greenback rose 0.3%, putting pressure on gold and silver that pay no interest and are priced in the dollars.

The broad retreat in bond markets also dragged stocks lower, putting a sudden halt to the artificial intelligence-fueled equity rally that has helped boost industrial metals like copper. The red metal fell as much as 2.5% while silver, which has traded in close tandem with copper, also reversed strong gains from earlier in the week and fell as much as 7.1%.

The Strait of Hormuz, the vital waterway for energy flows, remains effectively closed with efforts to end the Iran war in limbo, prolonging the energy crisis and keeping inflation concerns high. US wholesale inflation accelerated to the fastest pace since 2022 in April, while the consumer price index rose the most since 2023. Oil headed for a weekly gain.

“Inflation expectations, higher yields and a stronger dollar are likely to keep gold under pressure in the near term,” ANZ Group Holdings Ltd. analysts Daniel Hynes and Soni Kumari wrote in a note. ANZ deferred its $6,000 an ounce target to mid-2027 from early next year.

Gold has traded in a fairly narrow range since falling sharply in the early days of the war as investors assess inflation risks that could keep rates higher and growth concerns that could prompt monetary easing as the conflict drags on. Bullion is down more than 13% since the war started.

India, meanwhile, has further tightened rules for importing gold as it steps up efforts to defend the rupee, days after hiking import duties. That weighed on demand sentiment in the world’s second-biggest bullion market.

Spot gold was 2% lower at $4,560.48 an ounce as of 9:46 a.m. in London. Silver declined 6% to $78.50. Platinum and palladium also retreated. The Bloomberg Dollar Spot Index was 0.3% higher and is up 1% for the week.

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