Gold prices edged higher during Tuesday’s Asian session, recovering modestly from recent one-month lows, although downside risks remain as geopolitical tensions and inflation concerns continue to weigh on sentiment.
Spot gold rose 0.5% to US$4,544.27 per ounce by 4:10 pm AEST (6:10 am GMT), after falling to $4,500.45 in the previous session, its lowest level since 31 March.
The rebound has been described by some market participants as a temporary recovery, with broader market dynamics still favouring the United States dollar.
Risk-averse sentiment continues to underpin the greenback, limiting upside momentum in the non-yielding precious metal.
Renewed tensions in the Strait of Hormuz have returned to the forefront of investor focus, following reports that U.S. forces fired on Iranian vessels and sank six small boats that were targeting civilian shipping.
The move came as Washington attempts to reopen the critical waterway.
At the same time, the United Arab Emirates (UAE) said its air defence systems intercepted 15 missiles and four drones launched by Iran, underscoring the escalating nature of the conflict.
The developments have reignited inflation concerns, particularly after a sharp rise in oil prices overnight. Higher energy costs are expected to feed into broader price pressures, reinforcing expectations that the U.S. Federal Reserve may maintain a hawkish stance on interest rates.
This outlook poses a challenge for gold, which typically underperforms in a higher interest rate environment due to its lack of yield.
A stronger U.S. dollar, supported by safe-haven demand and its role as the world’s reserve currency, is also acting as a headwind for the metal.
If tensions between the United States and Iran escalate further, gold could face a dual pressure from both rising inflation expectations and continued dollar strength, leaving it vulnerable to renewed declines.
