Gold prices fell approximately 1% in early trading Thursday as escalating conflict in the Middle East drove oil prices higher, reigniting investor concerns that inflationary pressures could force the Federal Reserve to raise interest rates.
The precious metal’s decline marks a reversal of recent safe-haven buying, as traders weigh the dual impact of rising energy costs and shifting monetary policy expectations.
While geopolitical risk typically supports gold, the inflationary implications of surging oil prices are currently dominating market sentiment, prompting a rotation away from non-yielding assets.
This development follows a period of volatility for precious metals, which retreated on Wednesday amid shifting expectations for U.S. monetary policy.
On Tuesday, spot gold had already dipped 0.7% to $4,162 per ounce, pressured by a strengthening U.S. dollar and growing market bets that the Fed may hike rates later this year.
The current move suggests that the inflation trade is gaining traction over the safe-haven trade.