Gold Prices Slide 1.5% Amid U.S.-Iran Tensions and Shifting Fed Policy

Key Takeaways

• Precious metal prices declined approximately 1–1.5% Thursday, settling near $4,441–$4,476 per ounce
• Contradictory statements from Washington and Tehran regarding diplomatic negotiations are fueling market volatility
• Crude prices have surged past $100 per barrel as the Strait of Hormuz remains effectively blocked
• Traders now assign virtually no probability to a Federal Reserve rate reduction in 2024, with 38% expecting a potential increase
• An appreciating U.S. dollar is creating additional headwinds for bullion by raising costs for international purchasers

Bullion markets experienced a downturn Thursday following a two-session rally, as market participants digested contradictory statements from American and Iranian officials regarding the status of diplomatic negotiations.

Spot bullion retreated approximately 1.5% to around $4,441 per ounce. Futures contracts in the United States declined roughly 2.5% to $4,457.

The precious metal had recovered above the $4,500 threshold earlier in the week following a significant pullback, buoyed by dollar weakness and tentative optimism surrounding potential diplomatic breakthroughs.

Tehran’s foreign minister countered these assertions, stating that while Iran was examining an American proposal, the nation had no plans to engage in formal negotiations aimed at concluding the hostilities.

Brent crude advanced past the $100 per barrel mark Thursday. The Strait of Hormuz, a critical chokepoint responsible for approximately one-fifth of global oil and liquefied natural gas flows, has remained essentially impassable since U.S.-Israeli military operations against Iran commenced.

Energy prices reached approximately $120 earlier this month before moderating somewhat. Current levels remain substantially elevated compared to pre-conflict valuations.

Elevated crude prices increase transportation and production expenses, contributing to inflationary pressures. This dynamic reduces the likelihood of central bank interest rate reductions, creating a negative environment for bullion since it generates no income.

Market Expectations for Rate Cuts Collapse

Prior to the outbreak of hostilities, financial markets anticipated at least two Federal Reserve rate reductions during the current year. This outlook has undergone a complete transformation.

Data from CME Group’s FedWatch tool indicates virtually zero probability of a rate cut in 2024. Approximately 38% of market participants are now pricing in the possibility of a rate increase by year’s end. Around 93% anticipate the Fed will maintain current rates at its April policy meeting.

The U.S. dollar has simultaneously appreciated as capital flows into safe-haven instruments. Dollar strength increases the cost of gold for non-U.S. purchasers, typically suppressing international demand.

Trump emphasized Thursday morning that Iran should seek an arrangement with Washington and restated his assertion that Tehran’s military capabilities have been decimated.

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