Gold Slumps Below $4,250 On Renewed US-Iran Tensions, US CPI Data In Focus

Gold price (XAU/USD) attracts some sellers to around $4,235, the lowest since March 23, during the early Asian session on Wednesday. The precious metal extends its downside on renewed tensions in the Middle East and rising expectations of a US interest rate hike this year. The release of the US May Consumer Price Index (CPI) inflation data will be in the spotlight later on Wednesday. 

Reuters reported on Tuesday that the US launched strikes against Iran after US President Donald Trump said Tehran had shot down a US Apache helicopter in the Strait of Hormuz. Early Tuesday, Trump emphasized that Iran and the US are close to an agreement, though there have been few signs of progress since a tenuous ceasefire took effect in early April. 

Uncertainty surrounding the peace deal between the two countries continues to fuel concerns over inflation and expectations of elevated interest rates. It’s worth noting that Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.

Stronger-than-expected US May jobs data have boosted expectations of a Federal Reserve (Fed) rate hike this year. Traders will take more cues from the US CPI report later in the day. The headline US CPI is expected to show a rise of 4.2% YoY in May, compared to 3.8% in April. The core CPI is projected to show an increase of 2.9% YoY during the same period, versus 2.8% prior. 

Any signs of hotter inflation in the US could boost the Greenback and exert some selling pressure on the USD-denominated commodity price in the near term. 

“The prevailing inflation fears, data strength, Fed hike probability increasing, and break of 200-day moving average have led to a heavy skew negative,” said Ryan McKay, senior commodity strategist at TD Securities.