Gold Falls 1% as US-Iran Clashes Fuel Higher-Rate Concerns

Gold fell after military clashes between the US and Iran heightened concern that the Federal Reserve could keep interest rates elevated for longer or raise them again. Oil prices climbed as tensions in the Middle East intensified, adding to those worries.

According to Bloomberg on July 12, spot gold dropped as much as 1.2% intraday, slipping below $4,070 an ounce. That followed a 1.4% decline last week, extending the metal's losses.

Global oil prices rose after the US and Iran exchanged additional airstrikes over the weekend. Iran said it would close the Strait of Hormuz "until further notice," but US Central Command denied the claim and said it was continuing military operations to ensure freedom of navigation through the waterway.

Investors are weighing the risk that rising energy prices could reignite inflation and keep the Fed's tightening bias in place longer than expected. Minutes from the Federal Open Market Committee's June meeting, released last week, showed some officials said the possibility of further rate increases should be considered.

Because gold does not pay interest, it tends to become less attractive as rates rise. Since the US-Iran conflict began in late February, gold has fallen more than 20%. A three-year rally gave way to profit-taking, and the metal fell below $4,000 an ounce last month for the first time since November 2025.

Data from the Commodity Futures Trading Commission showed hedge funds and asset managers reduced their net long positions in gold to 114,854 contracts as of July 7.

Traders are also watching US June consumer price index data due this week and congressional testimony from Fed Chair Kevin Warsh for clues on the path of interest rates.