Gold prices traded near multiweek lows during Asian trading on Wednesday as escalating Middle East tensions pushed crude oil prices to their highest level since 24 July, fuelling inflation concerns and strengthening expectations for further US Federal Reserve (Fed) interest rate hikes.
By 4:30 pm AEST (6:30 am GMT), spot gold prices were down 0.2% at US$4,319.05 per ounce.
Tensions between the United States and Iran intensified following a U.S. strike on Iranian rocket launchers near Larak Island in the Strait of Hormuz on Sunday.
The attack marked the first U.S. strike since late July and prompted an Iranian response against U.S.-linked targets across the region.
On Tuesday, U.S. Central Command (CENTCOM) said American forces had also struck targets belonging to Iran's Islamic Revolutionary Guard Corps (IRGC).
Iran subsequently escalated the confrontation, launching ballistic missile and drone attacks against U.S. interests in Bahrain, Kuwait and Jordan on Wednesday.
The heightened geopolitical risk has supported crude oil prices and increased demand for the safe-haven U.S. dollar.
Investors remain concerned that higher energy prices could reignite inflationary pressures and encourage major central banks, including the Fed, to adopt a more hawkish monetary policy stance.
Fed Chair Kevin Warsh's comments at the Jackson Hole Symposium on Friday have also strengthened expectations of a possible interest rate hike in September.
According to the CME Group FedWatch Tool, markets are currently pricing in a 70.2% chance of an interest rate rise at the Fed's September meeting.
Additionally, concerns over fiscal debt have contributed to a deeper global bond market sell-off, pushing the yield on the benchmark 10-year U.S. Treasury to its highest level since January 2025.
Higher bond yields are weighing on gold, which does not offer interest income, while supporting the U.S. dollar and creating further headwinds for the precious metal.
Attention now turns to the closely watched U.S. monthly employment report, popularly known as the Nonfarm Payrolls (NFP) report, due on Friday.
