Gold Prices Trim Gains as Oil Market Volatility Keeps Inflation Fears Alive
Spot gold gave back part of its earlier gains on Thursday as oil prices fluctuated amid ongoing geopolitical tensions in the Middle East. Investors remained focused on the risk of higher energy prices fueling inflation and triggering further interest rate increases from major central banks.
Spot gold was trading 0.3% higher at $4,082.92 per ounce during U.S. market hours after earlier falling to its lowest level in more than six months. Meanwhile, gold futures slipped 0.6% to $4,107.15 per ounce.
Trump Escalates Rhetoric Against Iran
Market uncertainty increased after U.S. President Donald Trump stated that the United States would strike Iran “very hard” and eventually seek control of Kharg Island, one of the country’s most important oil export and energy infrastructure hubs.
In a social media post, Trump suggested that the U.S. could take control of Kharg Island and other strategic Iranian energy assets, comparing the potential move to recent American actions in Venezuela.
The comments immediately heightened concerns about the future of energy supplies from the Persian Gulf and their potential impact on global inflation.
Diplomatic Efforts Continue Despite Military Escalation
Despite the increasingly aggressive rhetoric, reports indicate that diplomatic negotiations between Washington and Tehran remain ongoing.
According to media reports, U.S. and Iranian officials continued discussing a possible peace agreement overnight. Reuters also reported that both sides are exploring a preliminary framework that could include the release of frozen Iranian assets.
While diplomatic efforts appear to be intensifying, uncertainty remains high as neither side has indicated that a final agreement is close.
Trump also warned that additional military action could follow if Iran does not immediately agree to a peace deal.
Military Exchanges Raise Regional Tensions
The latest developments come after several days of military exchanges between the United States and Iran.
U.S. Central Command confirmed that American forces carried out strikes against multiple military targets inside Iran late Wednesday and early Thursday. Officials described the attacks as defensive actions following the reported downing of a U.S. helicopter near the Strait of Hormuz.
Iran responded by launching strikes against U.S. military facilities and allied targets across the Gulf region. Unconfirmed reports indicated explosions in Kuwait, Bahrain, and Jordan.
Tehran also claimed it had halted ship traffic through the Strait of Hormuz, although U.S. officials disputed that assertion.
Beyond its confrontation with the United States, Iran has also continued exchanging attacks with Israel amid broader regional tensions involving Hezbollah militants in Lebanon.
Oil Prices Remain Elevated
Brent crude oil traded on both sides of unchanged levels throughout Thursday’s session, reflecting uncertainty surrounding the geopolitical situation.
Although oil prices remain below recent highs, they are still significantly higher than levels seen before the conflict began earlier this year.
Investors remain concerned that elevated crude prices could fuel a new wave of inflation across major economies, forcing central banks to maintain restrictive monetary policies for longer than expected.
Inflation Data Strengthens Rate Hike Expectations
Recent economic data has added to concerns about persistent inflation.
The latest U.S. Producer Price Index (PPI) showed monthly producer inflation rising 1.1% in May, matching April’s revised reading and exceeding market expectations. Earlier in the week, consumer inflation data also revealed the fastest pace of price growth in several years, largely driven by higher gasoline prices.
As a result, financial markets increasingly expect the Federal Reserve to consider another interest rate increase before the end of 2026.
The European Central Bank also raised interest rates on Thursday as policymakers sought to contain inflationary pressures across the Eurozone.
Stronger Dollar Adds Pressure on Gold
Gold prices are also facing pressure from a stronger U.S. dollar.
Since the start of the Middle East conflict in late February, the greenback has strengthened against major global currencies. A stronger dollar typically makes gold more expensive for international buyers, which can limit demand for the precious metal.
The U.S. Dollar Index, which tracks the currency against a basket of major peers, was trading 0.1% higher at 100.07 on Thursday.
With investors balancing geopolitical risks, inflation concerns, central bank policy expectations, and currency movements, gold is likely to remain highly sensitive to developments in both energy markets and global monetary policy.
