LONDON, June 14 (BV) – Gold prices have come under pressure despite escalating conflict in the Middle East, as investors increasingly focus on the prospect of higher interest rates and persistent inflation rather than traditional safe-haven demand.
The precious metal, often seen as a refuge during periods of geopolitical uncertainty, has retreated sharply from record highs reached earlier this year. Spot gold has fallen from around $5,303 per troy ounce at the end of January to approximately $4,235 on Friday, according to market data.
Analysts say the conflict involving the United States, Israel and Iran has pushed up energy prices through disruptions and security concerns around the Strait of Hormuz, fueling inflationary pressures across global markets.
Higher inflation has, in turn, reduced expectations that major central banks, led by the U.S. Federal Reserve, will begin cutting interest rates anytime soon.
“Gold loses part of its appeal when interest rates remain elevated because it does not generate income like bonds or bank deposits,” said Justin Cardwell of OptionSpreaders.com.
U.S. inflation has risen to 4.2%, its highest level in three years, while a resilient labor market has reinforced expectations that the Federal Reserve will maintain a restrictive monetary policy stance.
The stronger U.S. dollar has added further pressure on bullion prices. Because gold is traded globally in dollars, a stronger U.S. currency typically makes the metal more expensive for international buyers, reducing demand.
“When the dollar strengthens, gold tends to face headwinds. Right now, the dollar remains firm and that is weighing on precious metals,” said Colin Plume, chief executive of Noble Gold Investments.
Investors are closely watching signals from the Federal Reserve after CME FedWatch data showed that markets are increasingly pricing in the possibility of another rate increase before the end of the year.
However, gold recovered modestly on Friday after reports emerged that Washington and Tehran were moving closer to a potential diplomatic agreement aimed at easing tensions in the region.
A possible de-escalation could reduce upward pressure on oil prices and inflation, improving the outlook for financial markets.
Analysts caution that even if the conflict subsides, gold prices are likely to remain highly sensitive to interest-rate expectations, inflation trends and movements in the U.S. dollar.
For now, markets appear to be sending a clear message: monetary policy is having a greater influence on gold prices than geopolitical uncertainty.