On Tuesday, US President Donald Trump announced that Iran had shot down a US Apache helicopter over the Strait of Hormuz, vowing that the US 'must respond' to the attack [1][2]. Despite the heightened geopolitical tension and threats of retaliation, crude oil prices fell, with WTI sliding from just under $90 at the open to a session low near $85, before closing around $87 [1]. The initial spike in oil prices following the headline was quickly sold off, indicating that traders are now more focused on the potential for a deal to reopen the Strait of Hormuz rather than escalating conflict [1]. Ship traffic through the strait has been picking up as Washington and Tehran move toward a framework that could reopen the waterway, and the US Dollar softened on these hopes [1].
Gold (XAU/USD) also experienced a sharp decline, plunging nearly 2% and trading below $4,250, down 1.93% on the day [2]. The drop in gold prices occurred alongside a 15% jump in the Volatility Index (VIX), reflecting increased market uncertainty and speculation about possible escalation following Trump's comments [2]. However, gold's decline was also attributed to technical factors, as the spot price fell below the 200-day Simple Moving Average (SMA) at $4,440, signaling a bearish trend [2]. The Relative Strength Index (RSI) accelerated its decline toward oversold territory, suggesting continued downward momentum for gold [2].
Other market data included a decrease in the US 10-year Treasury note yield by 3.5 basis points to 4.532%, which typically supports bullion, but gold prices still fell in tandem with yields [2]. The US Dollar Index (DXY) edged down 0.09% to 99.91 [2]. Traders are also awaiting US inflation data, with May’s Consumer Price Index (CPI) projected to rise from 3.8% to 4.2% year-over-year, and underlying CPI expected to tick up from 2.8% to 2.9% [2]. The swaps market has priced in 23 basis points of Federal Reserve tightening by the end of 2026 [2].
Technical levels for gold suggest further downside if XAU/USD drops below the June 8 low of $4,268, with support at $4,200 and $4,098, and a significant area at $4,000 [2]. On the upside, reclaiming the 200-day SMA at $4,440 could push prices toward $4,500 and higher resistance levels [2]. For oil, a reclaim of the $88 spike high could reopen the run toward $90, but would likely require a real catalyst, such as an actual US strike or collapse of Hormuz talks, rather than rhetoric alone [1].
CONCLUSION
Despite President Trump's threats of retaliation after Iran's downing of a US helicopter, both crude oil and gold prices fell, reflecting market skepticism about escalation and a focus on potential diplomatic resolutions. Technical factors and upcoming US inflation data are also influencing price action. The market appears to be pricing in a deal rather than conflict, but remains sensitive to any genuine escalation.