Gold prices moved lower on Tuesday after fresh military action by the United States against Iran reduced optimism surrounding a potential agreement that could reopen the Strait of Hormuz and ease fears of rising energy-driven inflation.
Spot gold declined 0.9% to $4,529.38 an ounce by 06:13 ET (10:13 GMT), while gold futures edged slightly higher by 0.1% to $4,561.80 an ounce.
Middle East tensions undermine hopes for diplomatic breakthrough
Precious metals had previously strengthened following weekend reports suggesting progress in negotiations between Washington and Tehran aimed at securing a peace agreement and restoring shipping activity through the Strait of Hormuz.
However, sentiment shifted after the U.S. military confirmed additional strikes against Iran. According to U.S. media reports, American forces targeted mine-laying boats in southern Iran, with U.S. Central Command describing the operation as a defensive measure.
CENTCOM also stated that the ceasefire between the United States and Iran remained active. Meanwhile, Iranian officials warned that any further attacks on the country’s military infrastructure would trigger retaliation.
U.S. Secretary of State Marco Rubio later said reaching a formal agreement could “take a few days,” although he added that the Strait of Hormuz would reopen “one way or another.”
Rising oil prices and bond yields pressure bullion
Against this backdrop, benchmark oil prices rebounded, creating additional pressure on gold markets.
Analysts at UBS noted that gold has increasingly shown an inverse relationship with government bond yields, which have recently risen amid expectations that major central banks, including the Federal Reserve and the European Central Bank, may continue tightening monetary policy to counter oil-related inflation pressures.
Markets are currently pricing in a 40% probability that the Federal Reserve will raise interest rates by 25 basis points before the end of 2027. Assets such as gold, which do not generate yield, typically struggle in higher interest rate environments.
Stronger dollar adds to pressure on gold
UBS analysts also highlighted that rising bond yields have coincided with renewed strength in the U.S. dollar, potentially making gold more expensive for international buyers.
The U.S. dollar index, which tracks the currency against a basket of six major peers, has gained 1.3% over the past three months.
“Gold prices have struggled to regain momentum as higher U.S. bond yields, shifting central bank expectations, and renewed U.S. dollar strength reintroduce concerns over opportunity cost into the market’s pricing framework,” the UBS analysts said in a note cutting their projected price for bullion at the end of the year.