Gold Edges Lower To Near $4,000 As US-Iran Tensions Fuel Inflation Worries

Gold price (XAU/USD) declines to near $4,000 during the early Asian session on Tuesday. The precious metal extends its downside as escalating tensions between the United States (US) and Iran pushed oil prices up, intensifying inflation concerns. 

Bloomberg reported on Monday that US forces struck Iranian targets after US President Donald Trump vowed Tehran “will pay” for killing three US soldiers. US Central Command (CENTCOM) said that the US military began a new wave of strikes on Monday, the 10th straight day of attacks. “Every time Iran kills an American soldier, they will pay for that killing many times over!” said Trump. 

Concerns about an escalation in Middle East hostilities could push crude oil prices up and could prompt central banks to hold rates at elevated levels for longer, weighing on gold's appeal as a non-yielding asset.

“Gold remains negatively correlated to oil prices, with market participants closely tracking developments in the Middle East,” UBS analyst ‌Giovanni Staunovo said.

Traders continue to assess the likelihood of the US Federal Reserve (Fed) hiking interest rates to contain inflation. Swap traders see low odds of the Fed raising rates at its next meeting in July after softer US inflation data, although traders have fully priced in at least one hike by the end of the year.

Cleveland Fed President Beth Hammack on Friday joined a growing chorus of officials voicing concern over inflation, saying that interest rates may need to rise to beat back persistent inflation.

Hammack flags broad-based inflation pressures, reinforcing hawkish Fed tone

Fed’s Hammack delivers a more hawkish message relative to the historical average, with the FXS Speechtracker score rising to 7.2/10 versus a 6.6/10 baseline. The emphasis on businesses calling for action to curb inflation and consumers facing a “growing sense of despair,” alongside broad-based price pressures from energy, supply chains, insurance, and AI data centers, underscores a clear focus on persistent inflation risks even as growth and consumer spending remain solid. The repeated characterization of “persistently high inflation” as the bigger concern signals a bias toward tighter policy or at least a higher-for-longer stance for the Dollar.

The FXS Fed Sentiment Index climbed by 2.06 points to 128.64, reinforcing a firmly hawkish setting well above the neutral 100 mark. This move, aligned with the stronger FXS Speechtracker reading, suggests markets should lean toward expecting sustained restrictive policy, a supportive backdrop for the Dollar against the Euro and Yen.