Gold Slips Below $4,400 as Dollar, Inflation Jitters Weigh

Key Moments

Macro and Geopolitical Drivers

Gold (XAU/USD) is trading slightly lower below the $4,400 level heading into the European session on Tuesday, with the metal failing to extend its two-day recovery. The move comes as the US Dollar builds on its rebound from a two-month low, supported by renewed inflation concerns tied to higher crude oil prices and expectations that the US Federal Reserve could still deliver at least one interest rate increase in 2026. The firmer Greenback in turn is applying pressure on the non-yielding precious metal.

At the same time, the standoff between the United States and Iran is keeping a geopolitical risk premium embedded in markets, further enhancing demand for the USD as a safe-haven asset and adding to the headwinds for gold.

Escalating US-Iran Tensions and Shipping Risks

In the latest developments around the Middle East conflict, US President Donald Trump stated that Iran should surrender to bring an end to a war that has lasted nearly six months. Trump also indicated that the United States is not pursuing an extension of the Memorandum of Understanding (MoU) with Iran that expired on Monday.

In addition, Trump reiterated his proposal to declare the strategic Strait of Hormuz as US territory and cautioned that he would target Oman if it obstructed US efforts to reopen the key waterway. These comments come against the backdrop of intensified actions by Iran-backed Houthi rebels in Yemen against Saudi Arabia.

Houthi military spokesperson Yahya Saree said the group launched several ballistic missiles at a Saudi military landing vessel and four accompanying patrol boats off the coast of Mokha. Such actions threaten to further disrupt commercial traffic through the Bab al-Mandeb Strait – one of the world’s most critical trade corridors – heightening concerns around energy supply and pushing crude oil prices to a two-week high.

Market participants are increasingly wary that elevated energy prices could reignite inflation pressures. Coupled with a still-hawkish policy stance from the Fed, this backdrop is helping to keep US Treasury yields elevated and supporting the US Dollar, which in turn is weighing on gold.

Fed Outlook and Market Expectations

Strategists at TD Securities expect the Fed to “remain on hold over our forecast horizon,” arguing that the current policy stance is underpinned by the view that “inflation should remain high for the rest of the year” and that “the labor market has stabilized, allowing the FOMC to shift focus to its inflation mandate.” The firm further notes that, “if the Fed were to move this year, we believe that move is more likely to be a hike than a cut,” and underlines that under “a new management that espouses a blurrier reaction function, data dependence will likely gain prominence for determining the path ahead for monetary policy.”

This hawkish tone offsets last week’s softer US inflation and Retail Sales readings, which had led markets to trim expectations for an imminent rate increase. According to CME Group’s FedWatch Tool, traders are assigning around a 64% probability that the Fed will leave rates unchanged at its September 2026 meeting. Even so, investors continue to factor in a higher likelihood that borrowing costs will be raised at least once before year-end.

The resulting support for the Greenback has triggered intraday selling in gold. Nonetheless, the downside in XAU/USD appears limited for now, as participants weigh conflicting signals and await clearer guidance on the Fed’s next steps.

Focus on FOMC Minutes

With the fundamental picture mixed, many traders are reluctant to commit to strong directional positions in gold. Attention is turning to the release of the FOMC Minutes on Wednesday, which are expected to be a key driver for near-term USD dynamics and could offer fresh momentum for XAU/USD.

Until then, the combination of a stronger Dollar, elevated yields, rising oil prices, and ongoing geopolitical risks suggests a cautious approach is warranted before positioning for a more pronounced move lower in the metal.