Can gold hold firm as US-Iran tensions revive inflation and Fed rate fears?

Gold’s safe-haven appeal is being tested by the same geopolitical shock that would normally support it.

The metal swung between gains and losses on Wednesday after fresh US strikes on Iran lifted oil prices, strengthened the dollar and revived worries that inflation could stay sticky.

That left bullion caught in a difficult trade: demand for protection is rising, but so are the forces that make non-yielding assets less attractive.

With the Federal Reserve’s June minutes due later in the day, traders are looking for signs of how Chair Kevin Warsh is reading the inflation threat.

Iran strikes revive the inflation trade

Spot gold rose 0.5% to $4,125.59 an ounce by 0305 GMT, after earlier falling to its lowest level since July 2. US gold futures for August delivery slipped 0.5% to $4,136.30.

The move followed a new wave of US military strikes on Iran after three tankers were hit by projectiles near the Strait of Hormuz.

Washington also revoked a licence that had allowed Iran to sell oil, adding another layer of pressure to an already fragile ceasefire.

Oil reacted quickly. US crude jumped in early trade, Treasury yields rose and the dollar held near its strongest levels of the week.

For gold, that is a mixed setup. Geopolitical stress can lift haven demand, but higher oil prices can also feed inflation expectations and support the case for tighter monetary policy.

Dollar and yields cap bullion

Tastylive macro analysts see gold as trying to build a floor after the latest inflation scare knocked bonds lower and pushed the dollar higher.

That explains the choppy price action. Buyers are still interested near recent lows, but the market is not yet confident enough to chase a clean breakout.

Rate pricing has moved against bullion again. CME FedWatch showed traders assigning a little over 63% probability to a September Fed hike, up from about 57% on Tuesday.

Higher rates usually weigh on gold because the metal pays no income and competes with interest-bearing assets.

Fed minutes may reset expectations

The FOMC minutes from the June 16-17 meeting will be closely watched because they cover Warsh’s first policy meeting as Fed chair.

Investors want to know whether the central bank is more worried about energy-driven inflation, resilient demand or the risk of over-tightening.

Gold has been attempting to stabilise after a sharp pullback from earlier record highs, but the next move depends on whether the Fed minutes reinforce or soften the latest hawkish repricing.