Gold hits 2-month low as US-Iran tensions escalate
What's the story
Gold prices have hit a two-month low on Thursday, due to fresh US attacks on Iran. The military action has boosted the dollar and pushed oil prices higher, raising fears of rising inflation and complicating the interest rate outlook. Spot gold fell by 1.7% to $4,380.62 per ounce while US gold futures for June delivery dropped by 1.6% to $4,377.10 earlier today.
Market impact
Geopolitical tensions remain high
The dollar has hit a one-week high, making gold more expensive for holders of other currencies. "Geopolitical tensions remain high, and we've had too many false alarms from the peace deal talks. So I think the US dollar is going to remain bid, and that means gold is likely to remain under pressure," said Matt Simpson, a senior analyst at StoneX.
Strategic conflict
US military strikes in Iran
The US military has launched new strikes in Iran, targeting a military site believed to pose a threat to US forces and commercial shipping in the Strait of Hormuz. The action comes just hours after President Donald Trump dismissed an Iranian report of a deal to restore traffic through this strategic waterway.
Fuel costs
Oil prices jump
Oil prices have jumped by over 3% after Iran's Revolutionary Guards claimed they targeted a US airbase in retaliation for the US attack. Higher crude prices could accelerate inflation and keep interest rates elevated for longer periods. Although gold is often viewed as a hedge against inflation, higher rates usually weigh on this non-yielding metal.
Monetary policy
Fed may hike rates if inflation persists
Federal Reserve Governor Lisa Cook has suggested that the US central bank should keep short-term interest rates steady for now. However, with tariffs, the Iran war, and a surge in AI-related investment pushing prices higher, she is open to hiking rates if necessary. Investors are awaiting the release of US Personal Consumption Expenditures data later today for clues on the Fed's monetary policy path.