Gold prices retreated in Asian trade on Tuesday as renewed tensions between the United States and Iran boosted demand for the U.S. dollar and reignited concerns over inflation linked to rising oil prices.
By 3:45 pm AEST (5:45 am GMT), spot gold was trading 1% lower at US$4,528.52 per ounce after reversing gains made during the previous session.
The decline came as investors shifted back toward the U.S. dollar following reports that U.S. Central Command forces had conducted what Washington described as “self-defence” strikes in southern Iran.
The operations raised fresh doubts about the durability of the fragile ceasefire between the United States and Iran, triggering renewed risk-off sentiment across global financial markets.
Demand for the greenback as a safe-haven asset weighed heavily on gold, which typically loses appeal when the U.S. dollar strengthens and expectations for higher interest rates rise.
U.S. President Donald Trump attempted to maintain optimism around diplomatic efforts, saying ongoing negotiations with Tehran were “going nicely”, though he also warned that further military action remained possible if talks failed.
With uncertainty surrounding the ceasefire continuing to intensify, oil prices rebounded sharply in Asian trading, with West Texas Intermediate crude climbing back toward the US$100-a-barrel level.
The renewed rise in oil prices has also fuelled concerns that inflationary pressures could persist longer than expected, strengthening expectations that the U.S. Federal Reserve may need to maintain a hawkish policy stance.
Higher interest rate expectations typically pressure non-yielding assets such as gold.
Markets are now increasingly pricing in the possibility of another Federal Reserve rate hike before the end of the year, with the CME Group FedWatch Tool showing the probability of such a move standing at slightly above 50%.
On Monday, gold prices had rallied toward the US$4,600 level after optimism grew that Washington and Tehran were nearing a peace agreement that could end the three-month conflict and reopen the Strait of Hormuz to global shipping.
Investors are now closely watching for further updates on U.S.-Iran negotiations as well as upcoming U.S. economic data, including consumer confidence, for additional clues on the outlook for interest rates and broader market sentiment.
