Gold prices have been under severe pressure for weeks, as the prolonged conflict in the Middle East fuels inflation, the U.S. dollar strengthens, and markets await the Federal Reserve’s next policy meeting. The precious metal has lost more than $1,300 per ounce from its record highs, dipping below the psychological $4,300 barrier.
Current spot prices stand at $4,325.50 per ounce, down 1.01% on the day, after briefly falling below $4,300. Over the past week, gold has dropped 4%, over the month 8.5%, and over the quarter 16.15%, though it remains up 28.15% year-on-year. The decline is driven by renewed geopolitical turmoil, specifically the escalation of Israeli strikes on Lebanon and retaliatory long-range missile attacks by Iran and Houthi rebels on Israeli territory.
The escalation has dashed hopes for a ceasefire or peace deal that could unlock the Strait of Hormuz. As long as approximately 20 million barrels per day of crude from Gulf producers remain off the market, gold will continue to suffer compared to other raw materials, such as oil, which offer higher short-term returns.
Geopolitical turmoil weighs on gold
The ongoing three-month war involving the United States, Israel, and Iran has pushed investors toward oil futures rather than gold. The conflict has disrupted global supply chains and kept energy prices elevated, making dollar-denominated assets more attractive. The yellow metal, which does not generate interest or dividends, struggles to compete in a high-inflation, high-yield environment.
Analysts note that gold’s safe-haven appeal has been overshadowed by the immediate profits available in energy commodities. The market is now pricing in extended supply disruptions, which further depresses gold’s relative performance.
Fed meeting in focus
All eyes are on the Federal Reserve’s June 16-17 meeting, the first under new Chairman Kevin Warsh, appointed by President Donald Trump with a mandate to gradually lower interest rates. The Fed will release updated Summary of Economic Projections, and any signal of continued restrictive policy could reduce the appeal of non-yielding assets like gold.
U.S. inflation remains stuck at 3.8% year-on-year for April, the highest in three years, with the May reading due next week. Gasoline prices stand at $4.16 per gallon, pushing up living costs, while unemployment holds at 4.3%. A hawkish stance from the Fed would likely keep gold under pressure, as higher real yields encourage investors to favor bonds over bullion.
Long-term outlook remains intact
Despite the current slump, some analysts believe gold’s fundamentals are unchanged. – Although gold is lagging behind other commodities, its long-term fundamentals remain intact. The current weakness is linked to macroeconomic factors – said Jefferies analyst Fahad Tariq. He added that once inflation moderates and geopolitical tensions ease, gold could regain its safe-haven status.
For now, the market remains cautious. The combination of a strong dollar, elevated oil prices, and an uncertain Fed path suggests that gold’s rebound may be delayed until clearer signals emerge from Washington and the Middle East.
Źródło: WNP.PL, Fot. Brian A. Jackson / Shutterstock
