Gold prices extended their decline for a third consecutive day, falling after the United States launched new strikes against Iran. This escalation of geopolitical tensions threatens to prolong a conflict that has already significantly impacted global markets and fueled inflationary pressures, prompting investors to reassess risk exposure.
Geopolitical Tensions Drive Gold’s Retreat
Bullion dropped as much as 1.2% to trade near $4,024 an ounce in a choppy session, building on a 4.4% retreat recorded on Wednesday. The latest military actions saw the US military fire missiles at “multiple” targets in Iran, following President Donald Trump’s accusations that Tehran was deliberately hindering progress in interim peace deal negotiations. This direct engagement underscores Trump’s growing impatience with the stalled talks.
Iran swiftly retaliated by announcing the closure of the Strait of Hormuz to all vessels, a critical chokepoint for global energy flows. This move, if sustained, could further disrupt international trade and exacerbate economic instability. Now in its fourth month, the conflict has already caused oil prices to rise considerably and increased the likelihood of central banks implementing interest-rate hikes in an effort to control inflation, a measure that typically dampens economic growth.
Inflationary Pressures Mount Amid Conflict
The economic ramifications of the prolonged conflict are becoming increasingly evident, particularly in the United States. US inflation accelerated in May to its fastest pace in over three years, primarily driven by the war’s upward pressure on energy prices. According to Bureau of Labor Statistics data released on Wednesday, the consumer price index (CPI) climbed 0.5% from April and registered a substantial 4.2% increase from a year earlier. This marks the most significant annual rise since early 2023, notably outstripping Americans’ pay gains and eroding purchasing power.
Technical Levels and Investor Sentiment Shift
Gold’s recent performance places it approximately 23% below its trading levels before the Iran war commenced at the end of February. The metal’s decline through its 200-day moving average, coupled with its breach of the key support level of $4,100 an ounce, has triggered additional selling. These technical thresholds are closely monitored by institutional investors, suggesting a broader market reaction driven by algorithmic trading and risk management strategies.
Robert Gottlieb, a consultant and former precious metals trader at JPMorgan Chase & Co., offered insight into the market’s behavior in a LinkedIn post. He noted that “The constant flow of conflicting headlines is increasing uncertainties and prompting investors to reduce risk exposure and raise liquidity across a range of asset classes.” Gottlieb further clarified that the latest slump “is more about deleveraging and portfolio repositioning rather than a fundamental reassessment of gold as a safe-haven asset,” indicating a tactical rather not a fundamental shift in perception.
As of 7:50 a.m. in Singapore, spot gold was trading down 0.6% at $4,049.76 an ounce. The broader precious metals market also saw declines, with silver sliding 1.3% to $62.55 an ounce and platinum retreating. Palladium, however, remained steady, diverging from the trend. Concurrently, the Bloomberg Dollar Spot Index, which measures the US currency’s strength against a basket of peers, showed a marginal increase, potentially offering some counter-pressure to dollar-denominated commodities.
