Gold declines on renewed US-Iran military strikes

Gold prices fell in European trading on Thursday, resuming losses near a one-week low as renewed military strikes between the United States and Iran boosted demand for the US dollar and extended gains in global oil prices for a second consecutive session.

The decline followed the Federal Reserve's decision to leave interest rates unchanged for a fifth straight meeting, despite a clear split among policymakers, highlighting the central bank's continued cautious approach toward the outlook for US monetary policy.

Federal Reserve Chair Kevin Warsh reaffirmed the central bank's commitment to returning inflation to its 2% target over the medium term, stressing that future policy decisions will remain dependent on incoming economic data, particularly inflation and labor market conditions.

The Price

• Gold prices fell about 1.0% to $4,028.53 per ounce, down from the session opening level of $4,068.21. The metal reached an intraday high of $4,100.44.

• Gold settled 1.0% higher on Wednesday after earlier touching a one-week low of $3,966.02 per ounce, supported by a weaker US dollar following the Federal Reserve meeting.

US dollar

The US Dollar Index rose 0.2% on Thursday, rebounding from a one-week low as the greenback strengthened broadly against a basket of major global currencies.

The rebound was driven by renewed safe-haven demand for the US dollar following fresh military exchanges between the United States and Iran, raising fears that the conflict could spread further across the Middle East.

Global oil prices

Oil prices climbed about 1.5% on Thursday, extending gains for a second straight session as renewed tensions around the Strait of Hormuz fueled concerns over the security of global energy supplies.

Higher oil prices have also revived concerns about accelerating inflation, increasing the possibility that major central banks could maintain tighter monetary policy or raise interest rates in the near term.

Latest developments in the Iran conflict

• Military hostilities resumed after the United States launched a new wave of airstrikes lasting around two hours and targeting dozens of Islamic Revolutionary Guard Corps positions.

• The US strikes came in response to an Iranian ballistic missile attack targeting American military bases in Jordan.

• Iran confirmed that it had targeted US bases in Jordan and said it would continue responding to any attacks against its territory.

• The conflict expanded geographically after a US-owned gas tanker was targeted at Egypt's Damietta Port.

• Regional tensions escalated further as joint US and Saudi strikes against Iran-backed groups in Iraq continued, increasing concerns that the confrontation could spread to additional fronts.

• Diplomatic efforts remain stalled, with negotiations over de-escalation and the future of navigation through the Strait of Hormuz still at an impasse, reducing the likelihood of a new ceasefire in the near term.

Federal Reserve

At the conclusion of its latest monetary policy meeting on Wednesday, the Federal Reserve left its benchmark interest rate unchanged for a fifth consecutive meeting, in line with market expectations.

The decision exposed a clear divide among policymakers. Nine members voted to keep the federal funds rate unchanged at 3.50%-3.75%, its lowest range since September 2022, while three officials dissented in favor of an immediate 25-basis-point rate increase to curb inflation.

The dissenting members were Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan.

Monetary policy statement

In its policy statement, the Federal Reserve said the US economy continues to expand at a solid pace, with economic activity remaining resilient despite ongoing uncertainty surrounding the outlook.

The Fed also said labor market conditions have remained broadly stable, with the unemployment rate showing little change and job gains keeping pace with labor force growth.

The central bank added that inflation remains above its long-run 2% objective, with persistent price pressures linked to supply-side factors, particularly in the energy sector.

Kevin Warsh

Federal Reserve Chair Kevin Warsh reiterated the central bank's commitment to returning inflation to its 2% target but stopped short of providing clear guidance on the timing of the next policy move, emphasizing that future decisions will depend on incoming economic data.

US interest rate outlook

• According to the CME FedWatch Tool, markets currently price a 33% probability that the Federal Reserve will leave interest rates unchanged at its September meeting, while the probability of a 25-basis-point rate hike stands at 67%.

• For the December meeting, markets assign a 13% probability to no change in interest rates and an 87% probability of a 25-basis-point rate increase.

• Investors will continue to monitor upcoming US economic data and comments from Federal Reserve officials for further clues on the outlook for monetary policy.

Outlook for gold

At Economies.com, we believe investors' attention has shifted back toward rapidly evolving geopolitical developments in the Middle East after the Federal Reserve meeting passed without major surprises.

Renewed military exchanges between the United States and Iran have pushed oil prices higher and revived concerns about inflation, creating additional headwinds for gold in the near term.

SPDR Gold Trust

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased by 0.57 metric tons on Wednesday, lifting total holdings to 1,009.30 metric tons, the highest level since June 24.