Gold Continues to Decline After U.S. Strikes in Iran Heighten Inflation Concerns

SadaNews - Gold continued its decline for the third day, as new U.S. airstrikes on an Iranian military base threatened to hinder peace talks and kept inflation risks elevated.

The precious metal fell by as much as 1% to about $4,380 per ounce, after dropping 2.6% in the previous two sessions.

An American official described the U.S. attacks as defensive, stating that forces shot down four one-way Iranian attack drones launched at a commercial ship, as well as destroying a drone launch unit near the Strait of Hormuz.

Tensions arose hours after President Donald Trump said he was "not satisfied" with negotiations with Iran, easing expectations for a breakthrough soon.

Trump did not mention the steps the United States would take to ensure the free passage of ships through the Strait of Hormuz, a key sticking point in resolving the war with Iran.

The near-complete closure of the vital energy waterway has led to sharp increases in oil product prices, shaking the global economy since late February.

Gold Declines as Inflation Remains High

Even if an agreement is imminent, high energy prices are likely to keep inflation elevated and force central banks to maintain higher interest rates for longer, instead of implementing the cuts many had anticipated before the Iran conflict.

Gold usually performs poorly in a high-interest-rate environment because it does not yield interest. It has dropped over 16% since the outbreak of the Iranian conflict in late February, erasing most of its gains since the beginning of the year.

Lisa Cook, a member of the U.S. Federal Reserve Board of Governors, said on Wednesday that inflation is moving in the wrong direction and that she would be prepared to raise interest rates if this continues.

Justin Lin, an investment strategist at Global X ETFs Australia, noted that "traders may lose confidence in the narrative of a safe haven, having better investment priorities at the moment, in preparation for massive IPOs including CXMT in Asia and SpaceX in the United States."

He added that gold is likely to "seek support in the $4,000 to $4,250 range if oil trades at higher levels."