Gold Prices Drop Amid Rising US-Iran Tensions and Oil Surge

Gold prices declined on Thursday as fresh US attacks on Iran caused oil prices to rise, sparking worries about increased inflation and casting uncertainty over future interest rate expectations.

At 01:29 GMT, spot gold prices dropped by 0.8% to $4,419.60 per ounce, while US gold futures for June delivery fell 0.7% to $4,417.10.

The US dollar strengthened, making gold priced in the American currency more expensive for holders of other currencies.

An American official told Reuters that the US military conducted new strikes in Iran targeting a military site that officials assessed posed a threat to US forces and commercial shipping in the Strait of Hormuz. This followed President Donald Trump's denial of an Iranian report about an agreement to restore traffic through the strategic waterway.

Oil prices increased by approximately 2% during early Asian trading amid ongoing tensions between the United States and Iran.

Lisa Cook, a member of the Federal Reserve Board of Governors, stated on Wednesday that she believes the US central bank should keep short-term interest rates unchanged for now. However, with tariffs, the Iran conflict, and rising investments related to artificial intelligence pushing prices higher, she indicated readiness to raise rates if necessary.

Investors are awaiting the release of US personal consumption expenditure data later on Thursday to gain insight into the trajectory of US monetary policy.

Other precious metals also saw declines: spot silver fell 1.7% to $73.34 per ounce, platinum dropped 0.5% to $1,909.15, and palladium decreased 0.7% to $1,381.64.

Gold had maintained gains earlier after recent remarks by President Donald Trump revived optimism about ending the Iran conflict, which reduced bets on interest rate hikes.

In early trading, the precious metal hovered near $4,540 per ounce, following a 1.4% increase in the previous session, according to Bloomberg.

President Trump mentioned that the United States is in the "final stages" of negotiations with Iran. On Wednesday, the dollar and Treasury yields retreated, supporting gold, which is priced in US dollars and does not yield interest.

A potential end to the conflict and reopening of the Strait of Hormuz could ease inflation concerns driven by higher energy prices, reducing expectations that global central banks will keep interest rates elevated for longer periods. This scenario would be favorable for gold, which typically performs well in low-interest-rate environments.

Nonetheless, frequent fluctuations in rhetoric from both sides of the conflict have limited investor optimism. Since the war began in late February, gold has fallen about 14%, while 10-year Treasury yields remain near their highest levels in about a year.

The minutes from the latest Federal Reserve monetary policy meeting revealed that most officials warned the central bank would likely need to consider raising interest rates if inflation continues to persistently exceed their target.

Gold has traded within a narrow range since its sharp drop in the early days of the Iran conflict, as investors balance higher interest rates against a scenario of high inflation and low growth, which they believe should support gold.

Gold steadied after its decline as accelerating inflation in the US increased the likelihood of Federal Reserve interest rate hikes this year.

Bloomberg cited analysts from Citigroup Inc., including Kenny Ho, in a note stating, "When the Strait of Hormuz situation eventually calms, the prevailing macro headwinds against gold will ease, and gold prices are likely to reach their lowest levels."

They added that if the waterway remains closed for a much longer period, concerns would shift toward stagflation, a condition in which precious metals have historically performed well.

Spot gold was unchanged at $4,542.16 per ounce by 7:45 a.m. in Singapore. Silver slipped 0.1% to $75.83. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose slightly after finishing the previous session down 0.3%.