Gold (XAU/USD) experienced selling pressure, dropping to around $4,050 during the early Asian session on Friday, retreating from a two-month high. This decline comes amid escalating tensions in the Middle East, where Yemen’s Tehran-backed Houthi militant group claimed responsibility for attacking two Saudi oil tankers in the Red Sea, alleging they had violated a blockade of Saudi ports. Concurrently, the US conducted its 13th consecutive night of strikes on Iran, heightening concerns about a broader regional conflict [1].
US President Donald Trump issued a warning to the Houthis on Thursday, stating that any further attacks would result in "major military punishment" against both the group and Iran. Trump also told Axios he is "considering a massive attack" on Iran, describing it as potentially "bigger than ever before" and indicating he is "close to making a decision" with preparations already in place [1].
The rise in oil prices, driven by the conflict, has fueled inflation concerns and increased market expectations that the US Federal Reserve may resume raising interest rates as soon as next week. According to CME’s FedWatch tool, money markets are now pricing in a 35.8% chance of a rate hike this month and an 82.1% probability of at least a quarter-point hike in September [1].
Analysts at TD Securities caution that the macroeconomic environment remains unsupportive for sustained bullish positioning in gold. They argue that "there are no fundamental reasons to think that the US rate and FX environment will be conducive to increasing long gold exposure any time soon." The analysts further note that ongoing geopolitical developments, particularly oil price increases driven by the Middle East war, are likely to continue raising the probability of a Fed rate hike, which undermines the case for materially higher gold allocations in the near term [1].
CONCLUSION
Gold prices have come under pressure due to rising Middle East tensions and increased expectations of US Federal Reserve rate hikes. Analysts suggest that the current macroeconomic and geopolitical backdrop is unfavorable for a sustained rally in gold, with further upside likely constrained as Fed hike risks build.