Gold prices extended their decline on Wednesday, falling to their lowest level in more than three weeks as escalating tensions between the United States and Iran pushed oil prices higher.
The increase in energy costs strengthened concerns that inflation could remain elevated, raising expectations that the Federal Reserve may need to tighten monetary policy further.
At 01:52 ET, spot gold fell 0.4% to $4,311.83 per ounce. Gold futures declined 0.9% to $4,358.24.
Silver prices also dropped 0.4% to $63.82 per ounce, while platinum fell 0.4% to $1,736.87.
Meanwhile, the U.S. Dollar Index rose 0.1% to 99.77.
Gold Extends Losing Streak
Gold has now declined for four consecutive sessions and has fallen roughly 8% from last week’s high near $4,700.
The recent weakness comes as rising oil prices, higher global bond yields and a stronger U.S. dollar create a more difficult environment for precious metals.
Higher yields can reduce the appeal of gold because the metal does not pay interest. A stronger dollar can also make gold more expensive for buyers using other currencies.
U.S.-Iran Conflict Sends Oil Prices Higher
The latest pressure on gold followed another round of U.S. military strikes against targets in Iran on Tuesday.
Iran said it retaliated, marking a significant escalation after several weeks of relatively calmer conditions.
Oil markets reacted strongly to the renewed tensions.
Brent crude climbed above $95 per barrel, while U.S. crude moved above $91 as traders assessed the possibility of further disruptions to energy supplies.
Strait of Hormuz Risks Fuel Inflation Concerns
Investors remain particularly focused on the Strait of Hormuz, one of the world’s most important oil shipping routes.
A prolonged conflict that disrupts energy flows through the region could keep crude prices elevated and add further pressure to global inflation.
Higher energy costs can feed into transportation, manufacturing and consumer prices.
That could make it more difficult for central banks to bring inflation back toward their targets.
Fed Rate Hike Expectations Increase
The rise in oil prices has also strengthened expectations that the Federal Reserve could raise interest rates again.
Markets are now pricing in close to a 70% probability of a Fed rate hike at the September 15-16 policy meeting.
Expectations for tighter monetary policy increased after Federal Reserve Chair Kevin Warsh delivered a hawkish message at Jackson Hole last week.
Several Fed officials have also warned that inflation could remain persistent.
Fed Governor Michael Barr said policymakers should be prepared to raise interest rates if inflation does not cool sufficiently.
He warned that price pressures could become more deeply embedded after inflation remained above the Fed’s target for an extended period.
Global Bond Selloff Adds Pressure on Gold
The changing inflation outlook is also affecting global bond markets.
Long-term U.S. Treasury yields have moved sharply higher, reversing much of the decline that followed recent Treasury measures aimed at easing pressure on borrowing costs.
The 30-year Treasury yield climbed above 5.28% on Tuesday.
That brought yields back toward levels seen before Treasury Secretary Scott Bessent announced an expansion of the government’s bond buyback program on August 19.
Government bond yields have also risen across other major economies, with global yields reaching their highest levels since 2008.
Stronger Dollar Creates Another Headwind
The U.S. dollar has strengthened alongside the global bond selloff.
This creates additional pressure for gold because the metal is priced in dollars.
When the dollar rises, gold becomes relatively more expensive for international investors using other currencies.
The combination of stronger yields and a firmer dollar has therefore weakened demand for bullion in recent sessions.
Gold Reverses Part of Strong August Rally
Gold’s latest decline follows a powerful rally in August.
The precious metal gained nearly 10% during the month, marking its strongest monthly performance since January.
That rally accelerated after the U.S. Treasury increased bond buybacks, which helped revive concerns about government debt, currency depreciation and the longer-term value of fiat currencies.
Those concerns supported what is sometimes known as the debasement trade, where investors seek assets such as gold as protection against declining purchasing power.
ANZ Still Sees Longer-Term Support for Gold
ANZ analysts said the Treasury’s liquidity measures initially encouraged investors to increase their exposure to gold.
However, the recent rebound in bond yields and the U.S. dollar has reduced some of that momentum.
Despite the near-term weakness, ANZ expects concerns surrounding government debt and currency depreciation to continue supporting demand for gold over the longer term.
Gold Breaks Below Key Technical Level
Gold has also suffered a deterioration in its technical outlook.
The metal recently fell below its 200-day moving average, a widely followed indicator used by traders to assess longer-term market momentum.
A sustained move below this level could increase bearish pressure, especially if bond yields and the U.S. dollar continue to rise.
For now, gold traders are likely to remain focused on developments in the Middle East, oil prices, U.S. inflation data and expectations surrounding the Federal Reserve’s next interest rate decision.
