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Escalating tensions between the United States and Iran pushed gold to a two month low, as renewed inflation concerns strengthened the dollar and lifted oil prices, while markets awaited key U.S. inflation data for further direction.
Spot gold declined 1.5% to $4,389.99 per ounce as of 0902 GMT, after earlier touching its lowest level since March. U.S. gold futures for June delivery also fell 1.5% to $4,387.70. The drop comes as renewed air strikes between the U.S. and Iran intensified geopolitical risks, driving investors towards the dollar, which rose to a one week high. A stronger dollar makes gold more expensive for holders of other currencies, reducing demand for the precious metal.
Oil prices climbed more than 2% after Iran’s Revolutionary Guards said they had targeted a U.S airbase in response to an American attack in the port city of Bandar Abbas. The broader conflict, including the effective closure of the Strait of Hormuz, has triggered a surge in Brent crude prices, amplifying global inflation concerns and reinforcing expectations that interest rates could remain higher for longer.
“Gold drops to a two month low and into bear market territory as fresh U.S. – Iran hostilities douse hopes of a deal. Heightened geopolitical uncertainty directs risk-off flows to the dollar, just as higher oil prices exacerbate inflation fears. Higher-for-longer rate prospects weigh on non-yielding assets, compounding bullion’s weakness and leaving it vulnerable to new 2026 lows,” said Nikos Tzabouras, Senior Market Analyst at Jefferies-owned Tradu.com.
Although gold is traditionally viewed as a hedge against inflation, it tends to underperform in high interest rate environments, where investors favour yield-bearing assets such as U.S. Treasuries. Federal Reserve Governor Lisa Cook recently noted that the central bank should hold interest rates steady for now but said that rising pressures from tariffs, the Iran conflict and increased investment in artificial intelligence could push inflation higher, leaving the door open for further rate hikes if necessary.
Markets are now closely watching the U.S. Personal Consumption Expenditures (PCE) data, the Federal Reserve’s preferred inflation gauge, due later in the day, for clearer signals on the future path of monetary policy. Other precious metals also declined, with spot silver falling 1.7% to $73.34 per ounce and platinum dropping 1.3% to $1,893.16, both hitting near one-month lows earlier in the session. Palladium slipped 1.8% to $1,366.00.
