Gold Prices Weaken Amid Rising US-Iran Tensions and Interest Rate Concerns

Gold prices weakened on Monday, pressured by a stronger US dollar and rising bond yields as the conflict between the United States and Iran intensified. The precious metal closed at US$4,006.99 per troy ounce, down 0.24%, reversing some of the 1.18% gain recorded the previous Friday. On Tuesday morning, gold was trading nearly flat at US$4,007.04 per troy ounce. The yield on the 10-year US Treasury note rose 0.4%, while the dollar index gained 0.2%, making gold more expensive for holders of other currencies. Iran’s Revolutionary Guard announced it had targeted US military assets in the Middle East following recent American airstrikes on Iranian cities. Simultaneously, Yemen’s Houthi group declared a naval blockade against Saudi Arabia. The geopolitical turmoil pushed crude oil prices higher, with US WTI crude settling up 0.9% at US$83.23 per barrel and global benchmark Brent rising around 1.3% to US$89.22 per barrel, briefly touching a one-month high. The surge in energy prices has heightened inflation concerns, reinforcing expectations that the Federal Reserve will keep interest rates elevated for longer. High rates typically reduce the attractiveness of non-yielding assets like gold. David Meger, director of metals trading at High Ridge Futures, noted that the market is focused on rising energy costs and the potential for the Fed to raise rates again this year, despite recent lower-than-expected inflation data. Cleveland Fed President Beth Hammack also indicated that further rate hikes may be necessary to curb persistent inflation. According to the CME FedWatch Tool, market participants now see an 83% chance of a rate hike in December, up from 73% a week ago. However, Meger suggested that the Fed might opt for balance sheet adjustments rather than immediate rate increases, a shift that could eventually support gold prices and weaken the dollar.