Market Overview

On Wednesday, spot gold slipped 4.4% to $4,071.40 per ounce and gold futures fell 4.5% to $4,095.00 per ounce as of 16:58 ET (20:58 GMT). The decline was driven by a stronger U.S. dollar, a pull‑back in risk‑off equities, and heightened geopolitical tension after President Donald Trump warned of further attacks on Iran.

Geopolitical Catalyst

The U.S. military carried out "self‑defence" strikes against Iran following a promise to respond to the downing of an American helicopter over the Strait of Hormuz, an incident for which Iran has not claimed responsibility. Trump reiterated on Thursday that Iran had taken too long to negotiate a peace deal, stating the country would "pay the price" and claiming that "much of" Iran’s military had been eradicated by a joint U.S.–Israeli campaign now in its fourth month. He added, "We hit them hard yesterday and we’re going to hit them again hard today," and emphasized that Iran “very simply cannot have a nuclear weapon.”

Commodity Ripple Effects

The escalation pushed oil prices higher, as the continued closure of the Strait of Hormuz represents one of the largest oil‑supply disruptions in history, feeding global inflationary pressures.

U.S. Inflation Data

The May U.S. Consumer Price Index (CPI) showed a 0.5% month‑over‑month increase and a 4.2% year‑over‑year rise, matching consensus estimates. Core CPI, which excludes food and energy, rose 0.2% month‑over‑month and 2.9% year‑over‑year, also in line with forecasts. Energy prices surged 23.5% year‑over‑year, while gasoline jumped 40.5% year‑over‑year, the highest readings since August 2022 and July 2022 respectively. Core goods inflation slipped 0.1% month‑over‑month.

Monetary Policy Implications

The softer core inflation reading led traders to slightly lower expectations for further Federal Reserve rate hikes this year and modestly increase the odds of a quarter‑point rate cut later, according to the CME FedWatch tool. Prior to the CPI release, odds of additional hikes had risen sharply after strong labor‑market data.

Analyst Commentary

Joseph Brusuelas, principal and chief economist at RSM US, noted that the Fed now has little choice but to keep rates steady while the Middle‑East conflict persists, adding that continued inventory draw‑downs could force a policy‑rate hike in the fall, which would likely prompt similar moves by the European Central Bank and the Bank of England.

Contributors

The article was contributed by Ayushman Ojha and Scott Kanowsky.