Gold under pressure as inflation, Iran risks weigh on markets

Gold prices fell on Tuesday as persistent inflationary pressures and rising geopolitical risks in the Middle East dampened investor appetite for the safe-haven asset.

U.S. inflation data released last week showed consumer prices rising more than expected in April, reinforcing concerns that the Federal Reserve may delay interest-rate cuts. The yellow metal, which does not yield interest, typically struggles when real interest rates rise, as it increases the opportunity cost of holding non-yielding assets. Benchmark 10-year U.S. Treasury yields edged higher following the report, pressuring gold futures.

Geopolitical tensions in the region also weighed on the market. Reports of heightened tensions between Israel and Iran, including recent airstrikes and retaliatory threats, added to the risk-off sentiment. Historically, gold has benefited from such uncertainty, but in this case, the dual pressure from inflation and geopolitics has led to a pullback in prices.

Spot gold was down 0.4% at $2,325.60 per ounce by 08:30 ET, while U.S. gold futures fell 0.5% to $2,332.10. The metal has declined nearly 3% from its record high of $2,431.20 reached in April, as markets reassess the balance between inflation risks and safe-haven demand.

Analysts at UBS noted that while geopolitical risks remain elevated, the stronger-than-expected inflation print has shifted focus toward monetary policy expectations. "The market is now pricing in a higher-for-longer rate environment, which is weighing on gold," a UBS strategist said. Goldman Sachs similarly highlighted that real yields, rather than nominal rates alone, are the key driver for gold, and these have risen alongside inflation concerns.

Investors are awaiting further economic data, including U.S. retail sales and producer prices, for clues on the Fed’s next move. Any signs of persistent inflation could reinforce the case for delayed rate cuts, further pressuring gold prices. Meanwhile, the risk of a broader conflict in the Middle East remains a wildcard that could either support or undermine the metal’s safe-haven appeal, depending on the severity of developments.

For now, the outlook for gold remains mixed, with macroeconomic forces and geopolitical risks pulling in opposite directions.