Gold declines as Middle East tensions and higher-for-longer Fed outlook weigh
LONDON (June 3) Gold (XAU/USD) trades lower on Wednesday as escalating tensions in the Middle East dampen hopes for a near-term US-Iran peace deal. At the time of writing, XAU/USD is trading around $4,455, down nearly 1.85% so far this week.
US Central Command said American forces intercepted multiple Iranian ballistic missiles and drones targeting Kuwait and Bahrain on Tuesday. In response, US forces carried out strikes on an Iranian military ground control station on Qeshm Island in the Strait of Hormuz.
Meanwhile, US President Donald Trump pushed back against reports from Iran's Fars and Tasnim news agencies that talks had stalled.
Trump said on Wednesday that Iran had agreed not to have a nuclear weapon, Reuters reported. He also said Iran’s Supreme Leader, Ayatollah Mojtaba Khamenei, is involved in talks with the United States.
Traders continue to favor the US Dollar (USD) as negotiations between Washington and Tehran remain unclear and tensions in the Middle East persist, while the blockade around the Strait of Hormuz keeps Oil prices elevated.
The current macro backdrop has put Gold’s traditional defensive appeal under pressure as markets increasingly focus on the inflationary impact of higher energy prices.
As a result, traders now expect the Federal Reserve (Fed) to keep interest rates unchanged through the rest of the year, while pricing in a roughly 40% chance of a 25-basis-point (bps) rate hike at the December meeting.
A higher-interest-rate environment tends to reduce the appeal of non-yielding assets such as Gold. The hawkish repricing is also lending additional support to the US Dollar and pushing Treasury yields higher, adding further pressure on the precious metal.
On the economic calendar front, US ADP Employment Change rose by 122K in May from 105K in April, beating market expectations of 117K. It was also the highest level since March 2025. Traders now await the US ISM Services Purchasing Managers Index (PMI) data due later in the American session.
FXStreet
