Gold prices moved lower on Tuesday after fresh U.S. military strikes against Iran reduced optimism surrounding a possible diplomatic breakthrough that could reopen the Strait of Hormuz and ease concerns over rising energy-driven inflation.
Spot gold fell 0.9% to $4,529.38 an ounce by 06:13 ET (10:13 GMT), while gold futures posted a modest 0.1% gain to $4,561.80 an ounce.
Fresh military action dampens diplomatic optimism
Precious metals had previously found support after weekend reports indicated that Washington and Tehran were making progress toward a potential agreement aimed at restoring shipping access through the Strait of Hormuz.
That positive sentiment weakened after the U.S. military confirmed additional strikes on Iranian targets. According to American media reports, U.S. forces attacked mine-laying vessels in southern Iran, with U.S. Central Command characterizing the operation as defensive in nature.
CENTCOM also maintained that the ceasefire between the United States and Iran remained intact. At the same time, Iranian officials warned that any further military action against the country would trigger retaliation.
U.S. Secretary of State Marco Rubio later said that reaching a formal agreement could “take a few days,” while insisting that the Strait of Hormuz would reopen “one way or another.”
Higher oil prices and bond yields weigh on bullion
Oil markets rebounded following the renewed tensions, adding further pressure to gold prices.
Analysts at UBS said gold has increasingly traded inversely to government bond yields, which have risen as investors anticipate further monetary tightening from major central banks, including the Federal Reserve and the European Central Bank, in response to energy-related inflation risks.
Financial markets are currently pricing in a 40% likelihood that the Federal Reserve will raise interest rates by 25 basis points before the end of 2027. Non-yielding assets such as gold generally become less attractive in periods of elevated interest rates.
Dollar strength creates additional headwinds for gold
UBS analysts also pointed to renewed strength in the U.S. dollar, supported by rising bond yields, as another factor weighing on bullion markets by making gold more expensive for international buyers.
The U.S. dollar index, which measures the currency against six major peers, has advanced 1.3% over the last three months.
“Gold prices have struggled to regain momentum as higher U.S. bond yields, shifting central bank expectations, and renewed U.S. dollar strength reintroduce concerns over opportunity cost into the market’s pricing framework,” UBS analysts wrote in a research note lowering their year-end forecast for bullion prices.
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