Gold prices plunge as Trump’s hardline remarks on Iran drive crude up and interest rates rise
Gold Price Plunges on Trump’s Hard-line Iran Remarks; Oil Rises and Yields Ascend
Key Points
- President Trump warns of strong action against Iran
- Iran attacks U.S. bases in the Gulf region
- U.S. CPI (Consumer Price Index) at a three-year high
- Rising oil prices and U.S. Treasury yields weigh on gold
- Technical analysis
Gold Price Slumps More Than 3%
Gold (XAU/USD) dropped more than 3% on Wednesday.
The backdrop is that the latest U.S. inflation indicators remain elevated, reinforcing market expectations that high-rate policy will persist for longer.
Gold, an asset that yields no interest, tends to become less attractive in a high-rate environment and is more prone to selling.
Gold prices briefly fell to around $4,105, then traded near $4,130.
Rising Tensions Between Trump and Iran
One of the factors souring market sentiment is the Middle East situation.
President Trump said
“If Iran does not sign the agreement, the United States reserves the right to resume strong action.”
This was the statement.
Meanwhile, Iran carried out attacks on U.S. military bases in the Gulf region such as
- Jordan
- Kuwait
- Bahrain
As geopolitical risk rises, market tensions have increased.
U.S. Inflation Rate Rises to 4.2%
May’s U.S. Consumer Price Index (CPI) rose 4.2% year over year, a three-year high.
This aligned with market expectations, but
energy prices were up 3.9% year over year, contributing the most to the gain.
Additionally, the core CPI, excluding food and energy, rose 2.9% year over year, up from 2.8% previously.
Rate-Hike Expectations Persist
Even after the inflation data, markets continued to price in
“the possibility of additional Fed rate hikes within the year.”
However, the expected tightening magnitude has eased to 21 basis points (0.21%), down from 25 basis points anticipated at the start of the week.
Oil Price Gains and Higher Yields Pressuring Gold
Following Trump’s remarks,
WTI crude rose 2.62%, to $91 per barrel.
Fears of inflation from higher oil prices
pushed the U.S. 10-year Treasury yield up to 4.536%.
Rising yields are negative for gold prices.