Gold price (XAU/USD) fell to around $4,235, marking its lowest level since March 23 during the early Asian session on Wednesday, as renewed tensions between the US and Iran and rising expectations of a US interest rate hike weighed on the precious metal [1]. The decline follows reports that the US launched strikes against Iran after US President Donald Trump stated Tehran had shot down a US Apache helicopter in the Strait of Hormuz. Despite Trump emphasizing that the US and Iran are close to an agreement, progress has been limited since a ceasefire took effect in early April [1].
The ongoing uncertainty regarding a peace deal between the US and Iran continues to fuel concerns over inflation and the likelihood of elevated interest rates. Gold, typically seen as a safe-haven asset during geopolitical turmoil, becomes less attractive when interest rates rise, as it does not yield interest [1]. Stronger-than-expected US May jobs data have further boosted expectations of a Federal Reserve rate hike this year, with traders awaiting the US May Consumer Price Index (CPI) inflation data for further cues [1].
The headline US CPI is expected to show a 4.2% year-over-year increase in May, up from 3.8% in April, while the core CPI is projected to rise 2.9% year-over-year, compared to 2.8% previously [1]. Any signs of hotter inflation could strengthen the US dollar and exert additional selling pressure on gold prices, which are denominated in USD [1]. Ryan McKay, senior commodity strategist at TD Securities, noted, "The prevailing inflation fears, data strength, Fed hike probability increasing, and break of 200-day moving average have led to a heavy skew negative" for gold [1].
CONCLUSION
Gold prices have slumped below $4,250 due to renewed US-Iran tensions and expectations of higher US interest rates, with further direction likely to come from the upcoming US CPI data. Market sentiment remains negative, driven by inflation fears and the prospect of a Federal Reserve rate hike. Traders are closely watching for signs of hotter inflation, which could further pressure gold prices.