Gold prices declined on Thursday as escalating tensions in the Middle East pushed US Treasury yields higher, intensifying inflation concerns and reinforcing expectations that US interest rates will remain elevated.

Spot gold fell 1.7% to $3,989.95 per ounce after dropping as much as 2% earlier in the session. Meanwhile, US gold futures declined 1.4% to $3,994.30 per ounce.

Rate Hike Bets Increase

Traders are now pricing in roughly a 55% probability that the US Federal Reserve will raise interest rates in September, according to the CME FedWatch Tool.

Benchmark 10-year US Treasury yields moved higher, while the US dollar gained around 0.3%, making gold more expensive for overseas buyers.

Earlier this week, Federal Reserve Chairman Kevin Warsh reaffirmed his commitment to bringing inflation under control, although he stopped short of providing specific guidance on how that objective would be achieved.

Inflation Data and Energy Prices

Meanwhile, data released on Tuesday showed US consumer price inflation slowed in June, while Wednesday's figures indicated a decline in producer prices.

Fawad Razaqzada, Market Analyst at Forex.com, said in a note: "Even if some near-term economic data continues to soften, persistently high energy prices will make it difficult for the Federal Reserve to adopt a more dovish policy stance. For the same reason, investors continue to favor the US dollar over non-yielding gold."

The S&P 500 and Nasdaq indices moved lower on Thursday as continued weakness in semiconductor stocks overshadowed the positive start to the second-quarter earnings season, while investors continued to assess the latest economic data for clues about the strength of the US economy.

The Philadelphia Semiconductor Index (SOX) fell 3.8%, extending its losses for a second consecutive session.

Taiwan Semiconductor Manufacturing Company (TSMC) shares also declined 2.5%, despite the company reporting strong financial results. The world's leading producer of advanced AI chips delivered solid earnings, but the report failed to lift sentiment across the semiconductor sector, adding to market volatility.

Memory chipmakers were among the biggest losers, with Western Digital dropping 7.3%, Seagate Technology falling by the same percentage, and Micron Technology losing 4.8%.

Semiconductor stocks have been among this year's strongest performers, fueled by optimism surrounding artificial intelligence spending by major cloud computing companies, helping drive Wall Street's benchmark indices to record highs.

Shiraz Ahmed, founder and CEO of Sartorial Wealth, said the rally in semiconductor stocks is beginning to lose momentum—not because enthusiasm for artificial intelligence has faded, but because broad adoption of AI technologies has yet to materialize. As a result, heavy capital spending across the AI ecosystem, from energy infrastructure to semiconductor manufacturing, remains in place.

The S&P 500 has gained more than 10% since the start of the year and remains close to the record closing high it reached in June, leaving the market increasingly vulnerable to any earnings or economic disappointment.

Economic Data and Earnings Support Sentiment

Consumer staples led gains among the S&P 500 sectors, rising 2.1%, while a 1.9% decline in the information technology sector limited broader market gains.

US retail sales for June posted only a modest increase, as lower gasoline prices weighed on revenue at service stations. However, consumers seeking lower prices continued to support underlying spending.

Bill Adams, Chief Economist at Fifth Third Commercial Bank, said the slowdown in headline retail sales growth is actually a positive development because it reflects lower gasoline prices rather than weakening consumer demand. He added that the report supports expectations for solid real GDP growth during the second quarter.

Meanwhile, initial weekly jobless claims fell to 208,000 in the week ended July 11, coming in below economists' expectations.

At the same time, June inflation data released earlier this week helped ease concerns over additional monetary tightening by the US Federal Reserve.

Markets are currently pricing in an 88% probability that the Federal Reserve will leave interest rates unchanged at this month's policy meeting, according to the CME FedWatch Tool.

As of 9:50 a.m. Eastern Time, the Dow Jones Industrial Average rose 82.28 points, or 0.16%, to 52,740.92. The S&P 500 fell 29.56 points, or 0.39%, to 7,542.84, while the Nasdaq Composite declined 262.08 points, or 1.00%, to 26,007.14.

UnitedHealth raised its 2026 earnings forecast, sending its shares up 7.8% and helping support the Dow Jones Industrial Average, while the healthcare sector advanced 2%.

In contrast, United Airlines fell 2.8% as the latest rise in oil prices weighed on its third-quarter and full-year 2026 profit outlook. GE Aerospace also declined 4.4% despite raising its earnings forecast for 2026.

Geopolitical Tensions Remain in Focus

Escalating tensions between the United States and Iran remained firmly on investors' radar after Reuters reported, citing sources, that Iran had instructed the Houthi movement in Yemen to prepare to disrupt oil shipping through the Red Sea if the United States carries out strikes targeting Iran's energy infrastructure. Such a move would represent a fresh threat to global energy supplies.

Market breadth was mixed. Advancing stocks outnumbered decliners on the New York Stock Exchange by a ratio of 1.02 to 1, while declining stocks outpaced advancing issues on the Nasdaq by 1.55 to 1.

Bitcoin fell back below the $64,000 mark on Thursday after failing to close above its 50-day exponential moving average (EMA) near $65,120 in the previous session.

Although institutional demand showed modest improvement, with spot Bitcoin exchange-traded funds (ETFs) recording a second consecutive day of net inflows this week, escalating tensions between the United States and Iran reignited inflation concerns, limiting the positive impact of weaker-than-expected US inflation data on the world's largest cryptocurrency.

Bitcoin lost momentum and traded below $64,200 as the ongoing military escalation between Washington and Tehran raised fresh concerns about potential disruptions to global energy supplies, pushing oil prices higher.

Rising oil prices revive inflation concerns and cap Bitcoin's gains

Weaker-than-expected US Consumer Price Index (CPI) and Producer Price Index (PPI) data for June had supported Bitcoin's recovery earlier this week by reinforcing expectations that the Federal Reserve would keep interest rates unchanged, helping the cryptocurrency climb back to $65,600 on Wednesday.

However, the latest rebound in oil prices revived fears of energy-driven inflation, boosting demand for the US dollar as a safe-haven asset and bringing Bitcoin's recovery to a halt.

Institutional demand, meanwhile, showed only limited improvement during the week.

According to data from SoSoValue, spot Bitcoin ETFs recorded net inflows of $107.80 million on Wednesday, following inflows of $181.08 million the previous day.

Even so, those inflows were not enough to offset Monday's sharp net outflows of $424.66 million, indicating that institutional investors remain cautious despite Bitcoin's recent rebound.

Oil prices edged lower on Thursday as investors continued to assess the implications of escalating tensions between the United States and Iran and the potential risks to oil supplies passing through the Strait of Hormuz.

Brent crude futures fell 27 cents, or 0.32%, to $84.68 a barrel by 10:11 GMT, while US West Texas Intermediate (WTI) crude futures slipped 11 cents, or 0.14%, to $79.49 a barrel. Despite the decline, both benchmarks remained close to their highest levels in a month.

"The market continues to react with remarkable calm," said Ole Hvalbye, market analyst at SEB Research.

"It would make sense for prices to continue rising toward the $90-$95 per barrel range, and possibly return to the $100 mark, because repeated disruptions in the Strait of Hormuz are creating uncertainty over oil flows from the Gulf region," he added.

Ongoing disruptions in the Strait of Hormuz fuel concerns over a wider regional conflict

The latest market moves followed US strikes on Wednesday targeting Iranian coastal defense systems and missile sites after Washington reimposed a naval blockade on Iranian ports. Tehran, meanwhile, threatened to halt additional regional energy exports, declaring that it is engaged in an "existential war" with the United States.

The renewed escalation comes after the collapse of the fragile ceasefire reached in June, reviving fears of a broader regional conflict and disrupting energy flows through the Strait of Hormuz, which handled around one-fifth of global oil and liquefied natural gas trade each day before the war began.

Shipping data showed that only seven vessels passed through the strait on Wednesday, the first day after the United States reinstated its naval blockade on Iran, down from 13 vessels the previous day.

"Markets are likely to remain cautious as they assess the immediate supply risks. So far, despite the military escalation, oil tankers are still transiting the Strait of Hormuz, although in smaller numbers," said Wael Makarem, Senior Market Strategist at Exness.

Iran reiterated on Thursday that the Strait of Hormuz represents a "red line that cannot be crossed," warning that it would target all infrastructure across the Gulf if US President Donald Trump follows through on his threat to attack Iranian infrastructure.

Analysts believe Tehran has hinted at the possibility of using its Houthi allies in Yemen to disrupt shipping through the Bab al-Mandab Strait, potentially opening a new front in the confrontation with Washington and threatening the world's second most important energy shipping route.

Oxford Economics said its base-case scenario is for shipping traffic through the Strait of Hormuz to continue at reduced and volatile levels, leading to intermittent spikes in oil prices and keeping average crude prices above $80 a barrel over the coming quarters.

In a separate development, Ukraine's Security Service announced on Thursday that, in coordination with the Ukrainian Navy, it had targeted two Russian "shadow fleet" tankers in the Black Sea using naval drones.