Escalating military actions between the United States and Iran have extended the decline in gold prices, casting a shadow over prospects for peace in a conflict already disrupting global markets and stoking inflation risks.
On Wednesday, the price of gold tumbled as much as 2.1% to approximately $4,173 per ounce, following a 1.6% drop in the previous session. This move came after U.S. forces launched strikes on Iranian targets near the Strait of Hormuz, with President Trump accusing Iran of downing a U.S. military helicopter. Iranian media reported multiple explosions heard along the country's southern coast and on Qeshm Island.
The latest clashes threaten a fragile ceasefire and raise the risk of a near-total blockade of the Strait of Hormuz, a critical chokepoint for Middle Eastern energy exports to global markets. Iran's foreign minister stated on social media that the country "will not leave any attack or threat unanswered," and state television later reported an Iranian drone attack on the U.S. Fifth Fleet in Bahrain.
A brief rebound in oil prices on Wednesday further fueled concerns about global inflation, which could make central banks more inclined to keep rates steady or even raise them—a negative development for non-yielding precious metals. The Brent crude benchmark initially rose over 2% to surpass $93 per barrel before paring gains after the U.S. announced its retaliatory strikes had concluded.
Investors are closely watching the upcoming U.S. inflation report for clues on the Federal Reserve's next policy moves. Some market participants are already betting on tighter monetary policy, with the two-year U.S. Treasury yield climbing to its highest level in over a year, creating headwinds for interest-free gold.
Compared to its level in late February when the Iran conflict erupted, the gold price has fallen by roughly one-fifth. A recent break below the widely watched 200-day moving average, a key long-term momentum indicator, has triggered additional selling from institutional investors.
Key Factors Influencing Gold's Outlook
The head of global commodities research at Standard Chartered noted in a report that with the increasing probability of interest rate hikes, gold prices are expected to face greater vulnerability in the near term. She pointed out that if the decline in gold continues, holdings in gold ETFs could move into loss-making territory, which would "expose gold to further downside risks."
The analyst added that the next technical support level for gold is around $4,100 per ounce. While demand from markets like India remains soft, China continues to be a bright spot, with local gold premiums holding stable below $10 per ounce.
As of 1:20 p.m. Singapore time, spot gold was down 2% at $4,176.89 per ounce. Silver fell 2.5% to $63.75 per ounce, platinum declined more than 4%, and palladium also moved lower. The U.S. Dollar Spot Index was largely unchanged.
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