Spot Gold bounced off a five-week trough hit on Monday, but elevated oil prices kept inflation concerns alive and reinforced expectations of more hawkish central bank policy settings.
The uneasy ceasefire between the United States and Iran is under severe strain following a sharp flare-up of violence in the Persian Gulf on Monday.
According to a Reuters report, the US military destroyed six Iranian small boats and intercepted Iranian cruise missiles and drones, as Tehran aimed to thwart a new US naval effort to restore shipping through the Strait of Hormuz.
The UAE reported a fire at the oil port of Fujairah, which it said followed Iranian missile and drone strikes.
US President Donald Trump warned that Iran would be “blown off the face of the earth” if it targets American vessels accompanying ships through the strategic waterway, under a new initiative named “Project Freedom”.
“Prices seem to be digesting a bit after the return of the ‘war trade’ across markets sent gold lower Monday,” Ilya Spivak, head of global macro at Tastylive, was quoted as saying by Reuters.
Yet, Gold upside seemed restrained as Treasury “yields and the dollar pushed higher as a rebound in crude oil stoked inflation fears. That weighed against non-interest-bearing and anti-fiat gold,” Spivak added.
The US Dollar extended a pullback from a 2-week low, while Brent prices held above $113 per barrel.
Elevated energy costs have added to global inflation expectations and kept central bank policy makers wary of adopting a more dovish stance. In turn, the reduced probability of near-term interest rate cuts by central banks weighed on non-interest-bearing Gold.
Traders have largely priced out Fed interest rate cuts for 2026.
Spot Gold was last up 0.54% on the day to trade at $4,548.67 per troy ounce.
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