Gold Falls Below $4,000 as Fed Rate-Hike Fears Outweigh Escalating US-Iran Conflict

Gold fell below $4,000 even as military clashes between the US and Iran intensified, with mounting inflation concerns fueling expectations that the Federal Reserve may raise interest rates again.

According to Bloomberg, spot gold traded at about $3,995 an ounce on July 19. The metal remained under the $4,000 mark after falling more than 2% last week and extending its losses that day.

Tensions in the Middle East escalated over the weekend as the US and Iran exchanged airstrikes. Major oil facilities in Kuwait were attacked, and vessels transiting the Strait of Hormuz also came under attack, sending crude prices sharply higher.

Iran said its ceasefire with the US had effectively ended, heightening concerns about disruptions to energy supplies through the Strait of Hormuz.

As the conflict drags on, rising energy and raw-material costs are reinforcing expectations that the Fed could tighten policy further to contain inflation. Gold does not pay interest, so its appeal typically weakens when prospects for higher rates strengthen.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, recently expressed concern about elevated inflation. Interest-rate swaps are also pricing in the possibility of at least one benchmark rate increase by year-end.

Gold fell 14% in the second quarter, marking its worst quarterly performance since 2013. In recent weeks, the metal has traded in a narrow range around $4,000.