Gold prices fell more than two percent on Wednesday, hitting a more than two-month low as renewed fighting between Iran and the United States dampened expectations of a de-escalation in the Middle East conflict and reinforced concerns about inflation and interest rate hikes.
Spot gold dropped 2.1 percent to US$4,172.44 per ounce by 0849 GMT, its lowest level since March 23, while U.S. gold futures for August delivery also slipped 2.1 percent to US$4,195.60.
The decline came as investors reassessed the trajectory of the U.S.-Israeli war with Iran after fresh exchanges of fire between Tehran and Washington, which have reignited fears of a prolonged conflict across the region.
Iran’s Revolutionary Guards said they had launched missile and drone strikes on U.S. military installations in Jordan, Kuwait and Bahrain in retaliation for American attacks on Iranian targets near the Strait of Hormuz.
The escalation marks one of the most significant confrontations since a ceasefire agreement reached in April and has injected fresh volatility into global commodity markets.
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Despite gold’s traditional role as a safe-haven asset during periods of geopolitical uncertainty, analysts said the metal has come under pressure from shifting interest rate expectations and stronger inflation-linked policy concerns.
“Gold remains a victim of growing inflation risks despite geopolitical tensions fuelling risk aversion,” said Lukman Otunuga, senior research analyst at FXTM. “Renewed U.S.-Iran hostilities have essentially sabotaged efforts to end the war.”
Gold has fallen more than 20 percent since the outbreak of the U.S.-backed conflict with Iran in late February, as rising energy prices and persistent inflation expectations have altered investor positioning across commodity markets.
Higher oil prices have added to inflationary pressures globally, increasing the likelihood that central banks, particularly the U.S. Federal Reserve, may maintain or tighten monetary policy for longer than previously expected.
Markets are currently pricing in a 68 percent probability of a U.S. interest rate hike in December, according to CME FedWatch data, a notable shift from earlier expectations of rate cuts before year-end.
Because gold does not yield interest, higher rates tend to reduce its appeal relative to interest-bearing assets such as bonds, adding downward pressure on prices.
Attention is now focused on upcoming U.S. inflation data, with the Consumer Price Index due later on Wednesday and the Producer Price Index scheduled for Thursday.
Economists say the figures will be critical in shaping expectations for the Federal Reserve’s policy path in the second half of 2026, particularly after stronger-than-expected U.S. employment data last week reinforced bets on tighter monetary conditions.
“The incoming CPI report may heavily influence expectations around what actions the Fed takes in the second half of 2026,” Otunuga said. “Technically, gold’s fall below the 200-day moving average is a bearish signal that could trigger further selling pressure.”
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Broader precious metals also declined in line with gold. Silver fell 2.1 percent to $63.99 per ounce, platinum dropped 3.1 percent to $1,673.97, and palladium eased 0.4 percent to $1,217.
Analysts said the combination of geopolitical risk, inflation concerns and shifting rate expectations has created a volatile environment for commodities, with investors increasingly balancing safe-haven demand against the impact of tighter monetary policy.
While gold is typically viewed as a hedge against inflation and uncertainty, current market dynamics suggest that interest rate expectations are dominating price action, leaving the metal under sustained pressure in the near term.
