Gold prices fell on Tuesday as renewed tensions between the United States and Iran boosted oil prices, fueling inflation concerns and complicating expectations for future US interest rate policy.
Spot gold declined 0.7% to $4,537.10 per ounce by 1052 GMT, while US gold futures for June delivery held largely steady at $4,536.80.
The decline came after US military strikes in Iran triggered a sharp rally in Brent crude oil prices, reducing hopes for a quick diplomatic resolution in the Middle East and intensifying concerns about the broader economic impact of rising energy costs.
According to Ricardo Evangelista, senior analyst at ActivTrades, the surge in oil prices has reinforced fears that inflation could remain elevated for longer than previously expected.
“The geopolitical uncertainty has driven oil prices higher, intensifying inflationary pressures and strengthening expectations that the Federal Reserve may maintain a hawkish stance,” Evangelista said. “This creates a challenging environment for non-yielding assets such as gold.”
He added that the near-term momentum for gold appears tilted to the downside as investors continue to monitor developments surrounding US-Iran negotiations and upcoming US economic data.
US Secretary of State Marco Rubio stated on Tuesday that reaching a diplomatic agreement with Iran could still “take a few days,” signaling that uncertainty in the region may persist.
Higher crude oil prices often feed into broader inflation, which can pressure central banks to keep interest rates elevated for longer periods. Although gold is traditionally viewed as a hedge against inflation and geopolitical instability, rising interest rates tend to reduce the appeal of the precious metal because it does not generate yield.
Markets are now increasingly factoring in the possibility of tighter monetary policy later this year. According to CME Group’s FedWatch tool, traders currently see a 41% probability of a 25-basis-point Federal Reserve rate hike in December.
Investor attention is now turning to the release of the US Personal Consumption Expenditures (PCE) inflation report for April, due on Thursday. The PCE index is the Federal Reserve’s preferred inflation gauge and could provide fresh clues about the future direction of monetary policy.
Meanwhile, analysts at UBS revised their year-end gold forecast lower, cutting their target price by $400 to $5,500 per ounce. The bank cited persistent pressure from elevated bond yields and continued US dollar strength as key factors weighing on bullion prices.
Despite the downgrade, UBS maintained a constructive longer-term outlook for gold, noting that rising global debt levels, persistent US fiscal deficits, and ongoing central bank reserve diversification continue to support the strategic case for holding hard assets.
The bank also suggested that if oil prices stabilize or ease later in the year, conditions for gold could improve once inflation pressures begin to moderate.
Among other precious metals, spot silver dropped 2.2% to $76.37 per ounce, platinum fell 0.9% to $1,949.54, and palladium declined 1.7% to $1,374.
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