Gold Prices Fall in Global Market as Middle East Conflict Sparks Inflation Fears

Gold prices declined on Thursday as the escalating conflict in the Middle East drove oil prices higher with reviving global inflation fears and fueling concerns over potential interest rate hikes.

Spot gold dropped 0.6% to $4,034.42 per ounce while U.S. gold futures for August delivery slipped 0.3% to $4,039.90. The drop erases recent market optimism that followed a slowdown in U.S. consumer and producer inflation during June.

Analysts noted that June’s positive inflation data failed to reflect the recent, severe escalation between the U.S. and Iran effectively dissolved last month's interim peace efforts. Oil prices extended gains for a fourth consecutive session after the U.S. launched targeted strikes on Iranian coastal defenses and missile sites in response to a naval blockade. Iran retaliated by striking U.S. military positions in neighboring countries.

The surge in energy costs has kept global markets on edge. Financial traders are currently pricing in a 73% chance of a Federal Reserve interest rate hike in December. The officials have maintained a hawkish stance with Governor Lisa Cook stating she is prepared to act if inflation fails to cool down rapidly and Chairman Kevin Warsh reiterating his determination to rein in rising prices.

Other precious metals also tracked lower alongside gold. Spot silver fell 1.1% to $57.14 per ounce, platinum dipped 0.6% to $1,664 and palladium eased 0.3% to $1,309.86. Investors remain highly cautious and awaiting further policy clues from upcoming speeches by regional Fed presidents later today.