Gold prices fell on Thursday, reaching a one-week low, as renewed hostilities between the US and Iran reignited concerns about inflation and the prospect of higher interest rates. Spot gold decreased by 0.4% to $4,060.46 per ounce by 0343 GMT, after earlier dropping to its lowest since July 1. US gold futures for August delivery were down 0.3% at $4,069.80. The US military confirmed new strikes against Iran, aimed at keeping the Strait of Hormuz open, following President Donald Trump's declaration that a memorandum of understanding with Iran was "over." Iran retaliated by targeting US bases in Bahrain, Kuwait, and Qatar.
Escalating tensions in the Middle East are causing crude oil prices to rise, which in turn fuels inflation fears. This situation is making the Federal Reserve more likely to maintain its "higher-for-longer" interest rate stance. The Fed's June meeting minutes, the first under Chairman Kevin Warsh, revealed a divided central bank uncertain on rate policy without clearer inflation data. Markets are now pricing in a 68% chance of an interest rate hike in September and an 87% chance of an increase by January 2027, according to the CME FedWatch tool.
Despite gold typically being seen as an inflation hedge, high interest rates tend to diminish its appeal as a non-yielding asset. Bank of America has reduced its 2026 average gold forecast by 14% to $4,360 an ounce, citing a more hawkish Fed. While gold briefly rebounded to around $4,120 during early Asian trading on Friday, uncertainty remains high, with technical analysis indicating that the precious metal is under pressure. Immediate resistance is at $4,149.09, and a sustained break above this level is needed to ease the bearish sentiment.
