Gold prices moved lower on Monday after fresh military action between the United States and Iran undermined confidence in ongoing ceasefire efforts and renewed concerns that elevated energy prices could keep inflationary pressures alive, potentially prompting further action from the Federal Reserve.
Spot gold was down 0.8% at $4,501.54 per ounce by 02:57 ET (06:57 GMT), while U.S. gold futures fell 1.3% to $4,532.22 per ounce.
The precious metal had posted modest gains last week as investors reacted positively to indications that Washington and Tehran could extend a temporary ceasefire arrangement.
Escalation in the Middle East Weighs on Sentiment
Over the weekend, the U.S. military announced strikes on Iranian military targets, including air-defense systems and facilities associated with drone operations, following allegations that Iran had shot down an American drone.
Tehran responded with attacks on a military installation used by U.S. forces, while regional defense systems were deployed to intercept incoming drones and missiles.
At the same time, tensions elsewhere in the region intensified as Israel expanded military operations in southern Lebanon amid escalating confrontations with the Iran-backed Hezbollah group.
Hopes for a Deal Face Fresh Challenges
Market optimism surrounding diplomatic negotiations weakened after the latest exchange of strikes.
Although reports last week suggested that U.S. and Iranian officials were discussing a possible extension of the ceasefire and measures to restore shipping activity through the Strait of Hormuz, major points of disagreement remain unresolved.
Any eventual agreement would also require approval from U.S. President Donald Trump, leaving the outcome uncertain and raising questions about how quickly a diplomatic breakthrough can be achieved.
Oil Rebound Fuels Inflation Concerns
Crude oil prices strengthened on Monday in response to the renewed military tensions, reinforcing fears that energy costs could remain elevated for longer.
Persistent strength in oil markets has increased concerns that inflation may prove more difficult to contain, creating additional challenges for policymakers at the Federal Reserve.
As a result, investors have increasingly reassessed expectations for U.S. monetary policy. Before the conflict erupted, markets had largely anticipated interest-rate cuts rather than further tightening.
Higher interest rates generally reduce demand for non-interest-bearing assets such as gold.
Stronger Dollar Adds Further Pressure
The precious metal also faced headwinds from a firmer U.S. currency. The U.S. Dollar Index gained 0.1% during Asian trading, making gold more expensive for investors holding other currencies.
A stronger dollar, combined with rising expectations for higher interest rates, has limited gold’s ability to benefit from geopolitical uncertainty in recent weeks.
Safe-Haven Appeal Struggles Against Monetary Policy Risks
Despite its reputation as a traditional refuge during periods of geopolitical turmoil and inflation, gold has struggled to maintain upward momentum.
The metal fell to a two-month low last week before recovering some ground when ceasefire discussions eased concerns over a broader regional escalation.
Attention is now turning to upcoming comments from Federal Reserve officials and a series of key U.S. economic releases, including labor market data, which could provide further guidance on the outlook for interest rates.
Silver, Platinum and Copper Move Higher
Elsewhere in commodities markets, silver edged up 0.5% to $75.69 per ounce.
Platinum also advanced, gaining 1.1% to $1,940.95 per ounce.
Industrial metals posted modest gains as well. Benchmark copper futures on the London Metal Exchange rose 0.3% to $13,663.33 per tonne, while U.S. copper futures increased by the same margin to $6.44 per pound.
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