Gold prices moved lower on Monday after fresh military action between the United States and Iran reduced optimism surrounding a potential ceasefire agreement, while renewed concerns over inflation strengthened expectations that the Federal Reserve may tighten monetary policy further this year.
Spot gold declined 0.8% to $4,501.54 per ounce by 02:57 ET (06:57 GMT), while U.S. gold futures fell 1.3% to $4,532.22 per ounce.
The precious metal had ended the previous week slightly higher as investors welcomed signs that Washington and Tehran could agree to extend a temporary ceasefire arrangement.
New Military Escalation Raises Market Uncertainty
Over the weekend, the U.S. military announced strikes against Iranian military infrastructure, targeting air-defense systems and facilities linked to drone operations after Tehran was accused of bringing down an American drone.
Iran responded with attacks on a military base used by U.S. forces, while regional defense systems were activated to intercept incoming missiles and drones.
Meanwhile, tensions elsewhere in the region intensified as Israel ordered troops to advance further into southern Lebanon amid escalating clashes with the Iran-backed Hezbollah movement.
Diplomatic Progress Remains Uncertain
Although reports last week indicated that the United States and Iran were discussing an extension of the current ceasefire and the potential reopening of maritime traffic through the Strait of Hormuz, significant disagreements remain unresolved.
Any final arrangement would also require approval from U.S. President Donald Trump, adding another layer of uncertainty to the negotiation process.
The latest military developments have therefore cast fresh doubt on the prospects for a near-term breakthrough.
Rising Oil Prices Add to Inflation Pressures
Crude oil prices rebounded on Monday following the renewed exchange of strikes, reinforcing concerns that energy costs could remain elevated for an extended period.
Higher oil prices have increased worries that inflation may prove more persistent than previously anticipated, complicating efforts by the Federal Reserve to bring price growth under control.
As a result, investors have increasingly shifted their attention toward the possibility of additional U.S. interest-rate increases. Prior to the outbreak of the conflict, markets had largely been expecting rate cuts.
Higher borrowing costs typically reduce the appeal of non-yielding assets such as gold.
Stronger Dollar Weighs on Bullion
Gold also faced pressure from a firmer U.S. dollar. The U.S. Dollar Index rose 0.1% during Asian trading hours, making gold more expensive for holders of other currencies and reducing international demand.
The combination of higher bond yield expectations and a stronger dollar has created a challenging environment for the precious metal in recent sessions.
Safe-Haven Demand Fails to Offset Rate Headwinds
Despite its traditional status as a hedge against geopolitical instability and inflation, gold has struggled to gain momentum.
The metal dropped to its lowest level in two months last week before recovering as ceasefire discussions temporarily eased fears of a broader regional conflict.
Investors are now closely monitoring upcoming remarks from Federal Reserve officials, along with key U.S. economic releases, particularly labor market data, for further signals about the future direction of interest rates.
Silver, Platinum and Copper Edge Higher
Elsewhere in the metals market, silver posted modest gains, rising 0.5% to $75.69 per ounce.
Platinum outperformed, advancing 1.1% to $1,940.95 per ounce.
Industrial metals also traded higher, with benchmark copper futures on the London Metal Exchange increasing 0.3% to $13,663.33 per tonne. U.S. copper futures likewise gained 0.3%, reaching $6.44 per pound.