Gold Price Under Pressure As Iran War Feeds Inflation Fears

Three days of losses in a row for gold, and Friday brought no real relief. The metal trimmed some of its decline after US inflation data landed broadly where markets expected, but the underlying pressure has not gone away.

As long as the Iran conflict keeps energy costs elevated and rate hike expectations in play, gold is likely to continue to struggle against its own safe-haven appeal.

Spot gold was down 0.2% at $4,503 an ounce at 9:30 AM today, having earlier touched its weakest point since late March. US gold futures slipped to $4,534.

What The Inflation Data Said

The US Personal Consumption Expenditures price index rose 3.8% year-on-year through April, landing in line with expectations. The monthly reading came in at 0.4%, easing from March's sharper 0.7% jump.

The numbers suggested the Federal Reserve may not need to move aggressively in the immediate term, which gave gold a brief moment of support before the broader headwinds reasserted themselves.

Analysts say energy prices could stay high even after the conflict ends, meaning inflation pressure may persist regardless of how the geopolitical situation resolves.

Why Gold Is Struggling Despite The Conflict

The war in Iran should, in theory, be good for gold. Instead, it is working against it. Higher energy costs are pushing inflation higher, which is pushing rate expectations higher, which is pushing the dollar and Treasury yields higher.

Experts said geopolitical instability is no longer operating in gold's favour because the inflation channel it is creating is doing more damage to bullion than the safe-haven demand is doing good.

Minutes from the Federal Reserve's late April meeting added to the concern, showing a growing number of officials are open to raising rates if inflation stays stubborn. Minneapolis Federal Reserve President Neel Kashkari reinforced that message on Wednesday, calling for a continued focus on inflation risks while stopping short of signalling any specific timing on policy moves.

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Iran Headlines Move The Market Briefly

Iranian state television reported that Tehran could reopen the Strait of Hormuz within a month under a framework agreement requiring US forces to withdraw from Iran's vicinity. Gold briefly pared losses on that headline.

The gains did not hold. President Trump rejected a separate reported compromise proposal with Tehran, and Iran followed up by targeting a US air base after Washington struck what it described as an Iranian drone operation near the strait.

Spot silver is also down 0.09% to $75.59 per ounce at 9:30 AM on Friday. Bank of America said in a Tuesday note that silver could push back above $100 per ounce if gold rallies, but does not expect the metal to outperform gold on a sustained basis given softening fundamental demand.

Sources:

Reuters

CNBC