Gold’s Twin Torment: US Economic Strength and Oil-Spurred Rate Fears

Gold falls 1% as Middle East conflict triggers oil rally, fueling inflation fears and rate hike expectations. Strong US data, rising yields, and dollar strength add pressure.

Geopolitical turmoil in the Middle East usually sends gold soaring, but the precious metal has lost its haven reflex. Iranian missile attacks on Bahrain and Kuwait, coupled with US military operations near the Strait of Hormuz, have instead driven a rally in oil prices that is rekindling inflation fears — and that dynamic is crushing bullion.

Spot gold fell 0.2% to $4,476.50 per ounce on Wednesday, before sliding further to around $4,467 later in the session — a decline of roughly 1% from the previous close. US gold futures for August delivery lost 0.3% to $4,504.40. The culprit: higher energy costs are feeding into rate-hike expectations, turning a traditional safe-haven trigger into a headwind.

Strong US economic data added to the pressure. The ISM services purchasing managers’ index climbed to 54.5 in May, well above the forecast of 53.8. New orders surged to 57.3, while inventories hit 62.5 — the highest since May 2010. The ADP employment report showed 122,000 private-sector jobs added, slightly beating expectations. Together, the figures reinforce the view that the world’s largest economy is running hot, giving the Federal Reserve little reason to ease policy.

Treasury yields responded accordingly. The ten-year note pushed toward 4.5%, making the non-yielding metal even less attractive. Markets now price in a roughly 42% probability of a rate hike in December, and Fed President Hammack has not ruled out further tightening if inflation stays elevated. The central bank’s Beige Book confirmed that prices rose at a moderate to strong pace, driven largely by energy costs.

The dollar also benefited, gaining on both the strong data and the geopolitical uncertainty. The dollar index rose above 99 points, nearing the psychologically important 100 mark. A stronger greenback makes dollar-denominated gold more expensive for overseas buyers, further damping global demand.

Technically, gold is losing altitude. The relative strength index has dipped to near 40, approaching oversold territory but still about 4% below the 50-day moving average of $4,641. Analysts are watching the support zone between $4,000 and $4,100 as the next critical floor — a sustained break below that could trigger additional selling.

The oil angle is likely to remain a key driver. Crude prices jumped more than 1% on the Gulf tensions, with the Strait of Hormuz serving as the primary nerve point. US Secretary of State Marco Rubio has ruled out any sanctions relief for Iran in exchange for reopening the strait, tying any de-escalation to concessions on the nuclear program. As long as oil stays elevated and the Fed holds its hawkish line, gold looks vulnerable — regardless of how loudly the sirens wail in Bahrain.

All eyes now turn to the official US jobs report for May, due Friday. Another strong reading would likely compound the selling pressure on bullion.