Gold Slips Toward $4,000 as Middle East Conflict Fuels Fed Rate-Hike Expectations

Gold prices declined toward the $4,000 mark during early Asian trading on Monday. The precious metal has lingered near this psychological threshold in recent weeks following a 14% drop in the second quarter—its worst quarterly performance since 2013. Escalating tensions between the United States and Iran have driven oil prices higher, amplifying inflation concerns.

Despite signs of cooling in U.S. consumer and producer inflation, market sentiment remains pressured by rising energy costs and expectations that interest rates will stay elevated for longer. This environment undermines the appeal of non-yielding assets like gold.

According to the CME FedWatch Tool, traders are now pricing in a roughly 61.4% probability that the Federal Reserve will raise rates in September.

The U.S. conducted its ninth consecutive night of strikes against Iran on Sunday, with Washington stating the operation aimed to “punish” Tehran for the first U.S. military deaths since hostilities renewed, according to Bloomberg. Iranian officials declared the ceasefire effectively abandoned, raising the risk of deeper disruptions to energy flows through critical waterways.

Air raid sirens sounded across Bahrain after Iran launched a fresh barrage of ballistic missiles and one-way attack drones targeting sites in Bahrain, Jordan, Kuwait, and Iraq. Signs of a prolonged Middle East conflict could exert additional selling pressure on bullion in the near term.

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