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Gold prices dropped to a two-month low on Thursday as renewed US military action against Iran strengthened the dollar and pushed oil prices higher, raising concerns over inflation and the outlook for interest rates.
Spot gold fell 1.1% to $4,406.81 per ounce as of 0236 GMT.
The metal touched its lowest level since March 27 during the session.
US gold futures for June delivery also declined 0.9% to $4,404.90.
Stronger dollar weighs on bullion
The US dollar climbed to a near one-week high, making gold more expensive for buyers holding other currencies.
The stronger greenback added further pressure on bullion prices.
Matt Simpson, senior analyst at StoneX, said geopolitical tensions continue to support the dollar despite ongoing discussions around a possible peace agreement.
Gold is typically viewed as a safe-haven asset during periods of uncertainty.
However, a stronger dollar and expectations of higher interest rates often reduce the appeal of the non-yielding metal.
Fresh US strikes on Iran raise tensions
The decline in gold prices came after the US military launched new strikes in Iran targeting a military site believed to pose a threat to US forces and commercial shipping in the Strait of Hormuz, according to a US official.
The strikes took place only hours after President Donald Trump rejected an Iranian report claiming there was a deal to restore traffic through the strategic waterway.
The renewed tensions between the US and Iran also pushed oil prices higher.
Crude prices rose about 2% in early Asian trading on Thursday.
Higher oil prices have raised fears of accelerating inflation, which could force central banks to maintain elevated interest rates for longer.
Inflation concerns cloud rate outlook
Investors are increasingly focused on how geopolitical tensions and rising commodity prices could impact the Federal Reserve’s monetary policy path.
Federal Reserve Governor Lisa Cook said on Wednesday that the US central bank should keep short-term interest rates steady for now.
However, she added that policymakers remain alert to inflation risks linked to tariffs, the Iran conflict, and increased investment tied to artificial intelligence.
Cook said she is prepared to support rate hikes if inflationary pressures intensify.
Higher interest rates generally reduce the attractiveness of gold because the metal does not offer yields or interest income.
Market participants are now awaiting the release of US Personal Consumption Expenditures (PCE) data later in the day.
The report is expected to provide further clues on the Federal Reserve’s next policy moves.
Other precious metals decline
Other precious metals also traded lower during the session.
Spot silver declined 1.6% to $73.44 per ounce.
Platinum fell 0.8% to $1,902.66, while palladium slipped 1% to $1,376.66.