Gold remained under pressure on Monday, trading near three-month lows and extending losses from the previous session as investors continued to digest stronger-than-expected United States employment data and rising expectations for tighter monetary policy.
By 3:45 pm AEST (5:45 am GMT), spot gold was down 0.8% at US$4,286.74 per ounce, trading around the US$4,300 level after Friday's 3.3% decline.
The precious metal struggled to attract sustained safe-haven demand despite renewed hostilities in the Middle East, with traders focusing instead on the implications of a resilient U.S. labour market and the prospect of higher interest rates.
Tensions in the region intensified after Israel launched strikes in the Beirut area on Sunday, marking its first military action there since a ceasefire for Lebanon was announced by the United States last week. Hezbollah subsequently rejected the ceasefire arrangement.
Iran responded with missile strikes against Israel, arguing that Washington's ongoing naval blockade and Israel's actions in Beirut constituted violations of the ceasefire agreement reached between Tehran and Washington.
Since then, Israel and Iran have continued to exchange strikes, raising fears of a broader regional escalation.
Media reports indicated that U.S. President Donald Trump urged Israeli Prime Minister Benjamin Netanyahu not to immediately retaliate following Iran's initial missile attacks.
Additional reports suggested that both Iran and Yemen had launched missiles towards Israeli targets, further increasing geopolitical uncertainty across the region.
Ordinarily, escalating geopolitical tensions would provide support for gold prices through increased safe-haven demand.
However, the conflict has also driven oil prices sharply higher, raising concerns about inflation and reinforcing expectations that the Federal Reserve may need to maintain a restrictive monetary policy stance.
The primary catalyst for gold's recent weakness remains Friday's stronger-than-expected U.S. employment report.
Data released last week showed nonfarm payrolls increased by 172,000 jobs in May, substantially above market expectations for an 85,000 gain.
In addition, payroll figures for March and April were revised higher by a combined 93,000 jobs.
The unemployment rate remained unchanged at 4.3% for a third consecutive month.
The stronger economic data prompted investors to reassess expectations for Federal Reserve policy, reducing the likelihood of near-term interest rate cuts and increasing speculation that policymakers could tighten policy further if inflation remains elevated.
According to the CME Group FedWatch Tool, markets are currently pricing in a 42% probability of a 25-basis-point interest rate increase by the end of the year, while the probability of a larger 50-basis-point increase stands at 26.3%.
Higher interest rates generally weigh on gold because the metal does not provide a yield, making interest-bearing assets more attractive by comparison.
