Gold Plunges 2%, Forecast to Hit US$3,500 Amid Rising Dollar and Iran Tensions

Gold prices plunged almost two per cent, touching their lowest level in 11 weeks on Wednesday, as a stronger United States dollar and climbing oil prices stoked inflation concerns and bolstered the case for higher interest rates. According to Refinitiv data, spot gold was trading at US$4,174.74 per troy ounce as of 11:32 Western Indonesia Time, representing a daily drop of 2.05 per cent. The decline extended a losing streak, with the precious metal having settled at US$4,262.52 per troy ounce on Tuesday, down 1.53 per cent, marking a three-day slump of 4.7 per cent. The dollar index was trading at 99.918, making gold more expensive for holders of other currencies, while oil prices rose one per cent amid renewed conflict between the US and Iran, reinforcing expectations that borrowing costs will remain higher for longer. Ilya Spivak, Head of Global Macro Strategy at Tastylive, stated the primary drivers were a shift in Federal Reserve policy expectations, rising bond yields, and the strengthening US dollar. Market sentiment deteriorated after the US launched strikes against Iran on Tuesday, following President Donald Trump’s assertion that Tehran had shot down an American Apache helicopter in the Strait of Hormuz. The incident deepened doubts about a potential peace deal and further strained a fragile ceasefire. According to the CME FedWatch tool, traders are now pricing in a more than 70 per cent probability that the Fed will hike rates before December. Although gold is traditionally viewed as an inflation hedge, rising interest rates typically weigh on the non-yielding asset. Investors are now awaiting key US inflation data, including the May Consumer Price Index due later on Wednesday and the Producer Price Index on Thursday, for further clues on the Fed’s policy direction. Spivak added that a break below the US$4,100 level would fundamentally alter gold’s trajectory, potentially targeting US$3,500 by year-end.