Gold Falls as US-Iran Tensions Boost Oil, Crush Rate-Cut Hopes

Gold prices fell nearly 2% on Thursday, trading around $4,460 per ounce and nearing their lowest level since early January, as escalating US-Iran tensions pushed crude prices higher, reigniting inflation concerns and prompting investors to abandon hopes for US interest rate cuts this year. Iran reiterated its denial of ongoing negotiations with Washington, while President Donald Trump stated that Iran is "begging" to make a deal, though he questioned whether the US is "willing" to strike one now. The uncertainty drove the US dollar and Treasury yields higher, with markets now assigning a 38% probability of a rate hike by December and a 93% chance of unchanged rates at the Federal Reserve’s April meeting. Just 3% of traders expect a rate cut in December, a sharp reversal from pre-conflict expectations of at least two cuts in 2026.

Gold fell below $4,500 per ounce on Thursday, giving back gains from the past two sessions as conflicting statements from the US and Iran over potential peace talks continued to unsettle financial markets. Washington has maintained that negotiations are underway, with the Trump administration reportedly sending a 15-point proposal to Iran via Pakistan aimed at resolving the conflict and reopening the Strait of Hormuz. However, Iran said it has no intention of holding talks with the US and would reject a US ceasefire offer, instead setting its own conditions including sovereign control over the strategic waterway. The US has also ordered the deployment of thousands of troops to the Middle East, heightening concerns about a possible ground invasion. Gold has faced intense selling pressure this month as surging energy prices linked to disruptions from the Iran war fueled inflation fears and prompted a hawkish shift among major central banks.

Gold climbed above $4,500 on Wednesday, extending gains from the previous session as hopes for an end to the prolonged Middle East conflict grew on reports that the US was pursuing talks with Iran. Israeli media indicated that Washington was seeking a one-month ceasefire to enable negotiations, while the New York Times reported that the US had sent Iran a 15-point proposal to resolve the conflict. This raised optimism even after President Donald Trump ordered the deployment of about 2,000 troops to the region, as the administration weighed options to ease Iran’s control over the Strait of Hormuz. Gold has previously plunged as much as 25% from its March peak as elevated energy prices driven by the Iran war fueled inflation concerns and strengthened expectations that major central banks may raise interest rates this year. Federal Reserve Governor Michael Barr said the central bank may need to keep rates elevated for some time to address inflation.