Gold prices struggle to recover as Middle East tensions fuel inflation fears

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Gold prices struggle to recover

Highlights

Spot gold trades near $4,122 amid Iran uncertainty.
Energy inflation complicates the Fed rate outlook.
Weak U.S. housing data adds to policy uncertainty.

Gold has fallen more than 1% since the beginning of the week as conflicting diplomatic signals have unsettled financial markets, Bloomberg reports. Spot gold traded at $4,122.04 per ounce, down 0.08%, while December 2026 gold futures stood at $4,139.87, down 0.07%, according to the latest market quotes.

Iran conflict keeps inflation concerns elevated

Gold has lost approximately 20% of its value since the U.S.-Iran conflict began in late February. The war has pushed energy prices higher, increasing concerns that inflation could remain elevated and force central banks to maintain restrictive monetary policies.

Oil prices eased from a five-month high on Tuesday after conflicting reports emerged about negotiations to end the conflict. A diplomat disputed suggestions that an agreement was imminent, leaving investors uncertain about the prospects for a diplomatic settlement.

Although geopolitical instability traditionally supports demand for precious metals, the inflationary consequences of the conflict have created competing pressures. Higher energy costs can keep interest rates elevated, reducing the appeal of gold because it does not generate interest income.

Federal Reserve decision approaches amid weak economic data

Investors are preparing for the Federal Reserve's policy meeting next week, with limited new economic information available to clarify the central bank's intentions.

Fed Chair Kevin Warsh offered little indication of an imminent policy change during remarks on Friday. Markets currently assign less than a one-in-six probability to a quarter-point rate increase at the upcoming meeting.

However, inflation remains above the Fed's 2% target, and traders estimate an approximately 85% probability of another rate increase later this year.

Recent U.S. housing figures have complicated the outlook. September housing starts declined, while pending home sales reached a record low, suggesting that higher borrowing costs are weighing on economic activity.

Longer-dated U.S. Treasury securities gained on Tuesday as oil prices retreated and investors assessed the weaker housing data.

Treasury yields and energy prices shape gold outlook

Gold's direction remains closely linked to developments in energy markets and expectations for U.S. monetary policy. A sustained decline in oil prices could ease inflation concerns and reduce pressure for additional interest rate increases.

For gold investors, the immediate challenge is determining whether slowing economic activity will eventually outweigh persistent inflation. Until the outlook for the Iran conflict becomes clearer, changes in energy prices, Treasury yields, and Federal Reserve expectations are likely to remain the main drivers of precious metals trading.

We also reported oil markets face rising risks as Middle East tensions threaten Hormuz shipping.

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