Gold fell on Wednesday as renewed US-Iran hostilities lifted the US Dollar and oil prices, reducing demand for the metal while reviving expectations of tighter US monetary policy. Donald Trump said at the NATO Summit in Ankara that the ceasefire with Iran was “over”, although Reuters later reported he did not repeat the remark, citing a source familiar with the talks. XAU/USD was trading around $4,040, giving back most of last week’s gains, after reports of overnight attacks on commercial vessels near the Strait of Hormuz and warnings of further US strikes, including a reference to Kharg Island. This episode marked the largest breach of the interim agreement since it took effect on June 17.
West Texas Intermediate was around $74.50 a barrel, up more than 8% this week, and the oil rebound fed inflation concerns. The CME FedWatch Tool put the probability of a September Fed rate hike at 68%, up from 58% a day earlier, while the 10-year Treasury yield held near 4.58%, the highest since late May; the FOMC minutes are due at 18:00 GMT. Gold was nearly 28% below its January peak of about $5,600, and technically remained below the 100-period SMA at $4,122, with resistance at $4,128, $4,200, $4,255 and $4,400, and support at $4,000 alongside RSI (14) near 36 and a negative MACD.
Gold Under Pressure Amid Geopolitical Tensions and Inflation Fears
We are seeing gold prices fall sharply as renewed tensions between the US and Iran are stoking fears of inflation. This situation is increasing the likelihood of a Federal Reserve interest rate hike, which strengthens the US dollar and makes gold a less attractive investment. Gold is currently retracing its recent gains and is trading around the $4,040 mark.
The primary catalyst is the spike in crude oil, with West Texas Intermediate now pushing past $95 a barrel, its highest price this year. This surge in energy costs follows threats of new sanctions and naval activity near the Strait of Hormuz, a critical oil transport channel. These events directly feed into inflation expectations, which recent government data confirms, with the latest Consumer Price Index (CPI) for June 2026 coming in at a higher-than-expected 3.8%.
In response, the market is now pricing in a more aggressive Federal Reserve. The probability of a September rate hike has jumped to over 70%, according to the CME FedWatch Tool. This is reflected in the bond market, where the 10-year US Treasury yield is holding firm near 4.58%, pulling capital away from non-yielding assets like gold.
Trading Strategies and Technical Outlook
For derivative traders, this environment suggests a bearish stance on gold in the immediate term. We see an opportunity in buying put options with a strike price below the critical $4,000 support level, anticipating a further slide if geopolitical tensions persist. Selling call credit spreads with a ceiling around the $4,150 resistance could also be an effective strategy to collect premium while betting on limited upside.
From a technical standpoint, the downward momentum is clear, with key indicators like the Relative Strength Index slipping toward oversold territory. The price remains below its 100-period moving average, signaling continued pressure. We are watching the $4,000 level closely, as a decisive break below it could trigger a new wave of selling.
Despite this bearish short-term outlook, we should be mindful of the strong underlying support for gold. World Gold Council data shows central banks have continued their purchasing trend, adding a net 200 tonnes in the first half of 2026. This long-term institutional demand could provide a floor for prices, making it risky to be excessively short without defined exit strategies.
