Gold prices fell at the start of the week as markets continued to react to renewed tensions between the United States and Iran in the Gulf. Although geopolitical risks usually support safe-haven demand, pressure from expectations of further Federal Reserve rate hikes continued to weigh on the precious metal.

As of 02:42 GMT, spot gold was down 0.7% at $4,061.35 per ounce. U.S. gold futures for August delivery also fell 0.5% to $4,076.40 per ounce. The precious metal is heading for its fourth consecutive monthly decline, with losses of around 10.4%.

U.S.-Iran Tensions Raise Inflation Concerns

Oil prices rose after Iran reportedly launched missiles and drones at U.S. military sites in Kuwait and Bahrain. The move came shortly after U.S. President Donald Trump issued a strong warning to Iran’s leadership if the country failed to comply with the agreement to end the war.

Higher oil prices can increase inflation concerns, especially since energy has a major impact on production and consumer costs. Against this backdrop, markets are questioning how long oil prices can remain subdued and how this could affect the interest rate outlook.

However, according to Axios, Tehran and Washington have agreed to halt recent hostilities in the Gulf and resume talks over their dispute involving the Strait of Hormuz. This helped prevent markets from falling into a more severe risk-off reaction.

Fed Rate-Hike Expectations Continue to Pressure Gold

Although gold is often viewed as a hedge against inflation, it does not generate yield. As a result, in a high-interest-rate environment, gold tends to become less attractive compared with yield-bearing assets such as bonds.

At present, traders are expecting the Fed to raise interest rates three times this year. According to the CME FedWatch Tool, markets are pricing in around an 80% probability of a rate hike in December.

This remains a key factor putting pressure on gold, despite ongoing geopolitical risks.

U.S. Jobs Data Will Be the Next Key Focus

Investors are now waiting for June ADP employment data and the U.S. nonfarm payrolls report, both due later this week. These data points will be important for assessing the Fed’s next monetary policy direction.

If the labor market remains strong, expectations for further Fed rate hikes could be reinforced, adding more pressure on gold. On the other hand, if employment data shows signs of weakness, gold may receive support as rate-hike expectations ease.

Other Precious Metals Trade Mixed

Other precious metals also saw notable moves. Spot silver fell 1.1% to $58.51 per ounce. Meanwhile, platinum gained 1% to $1,630.13 per ounce, while palladium rose 0.8% to $1,218.92 per ounce.

These moves show that the precious metals market is being influenced not only by safe-haven demand, but also by interest rate expectations, inflation concerns, and industrial demand.

Conclusion

Gold is currently being pulled between two opposing forces. On one hand, U.S.-Iran tensions and rising oil prices could support gold’s safe-haven role. On the other hand, expectations of further Fed rate hikes continue to pressure gold because it is a non-yielding asset.

In the short term, the market’s focus will remain on U.S. employment data and developments in the Gulf. If economic data remains strong and oil prices stay elevated, rate-hike pressure could continue to weigh on gold.

Conversely, if geopolitical tensions ease, oil prices retreat, and the U.S. dollar weakens, gold could have room to recover in the period ahead.

Source: Reuters