Gold prices dropped below the $5,000-per-ounce mark during Asian trading on Wednesday as investors grew cautious ahead of the Federal Reserve’s widely anticipated interest rate decision later in the day.
The metal had briefly climbed back above the $5,000 level earlier, but reversed direction as ongoing hostilities in the U.S.-Israel conflict with Iran kept markets uneasy about the potential inflationary consequences of the war.
Spot gold declined 0.4% to $4,987.09 by 01:18 ET (05:18 GMT), while gold futures also fell 0.4% to $4,990.44 per ounce.
Other precious metals moved lower as well. Spot silver slipped 0.3% to $79.0345 per ounce, while platinum dropped 0.6% to $2,116.40 per ounce.
Safe-haven demand limited despite Iran conflict
Escalating tensions in the Middle East provided only modest support for gold, which struggled to sustain levels above $5,000 this week even as the United States and Israel continued military strikes on Iran, prompting retaliatory attacks from Tehran.
The conflict showed little indication of easing after an Israeli airstrike earlier this week killed Iranian security chief Ali Larijani. Oil prices remained elevated above $100 per barrel, reflecting persistent concerns about disruptions to global supply.
Markets have become increasingly worried about the inflationary implications of the conflict, particularly as crude prices surged toward levels not seen in nearly four years after shipping through the critical Strait of Hormuz was disrupted.
Higher energy costs could push central banks toward a more hawkish stance. On Tuesday, the Reserve Bank of Australia raised interest rates and warned that the conflict could contribute to renewed inflationary pressures.
Focus shifts to Fed and global central banks
Attention is now turning to a series of major central bank meetings scheduled in the coming days.
The Federal Reserve will announce its policy decision later on Wednesday, with additional decisions expected this week from the Bank of Japan, the European Central Bank, the Swiss National Bank and the Bank of England.
Markets broadly expect the Fed to keep interest rates unchanged, but investors are closely watching for signals about whether policymakers believe the Iran conflict could lead to higher inflation and influence the future path of rates.
According to CME FedWatch data, traders are now largely pushing back expectations for any Fed rate cuts until at least September.
A prolonged period of higher interest rates tends to weigh on gold, as rising yields increase the opportunity cost of holding assets that do not generate income.
Although gold still holds on to some gains for the year, it has retreated significantly from the record high near $5,600 per ounce reached in late January.