Gold prices continued their downward trajectory on Monday, driven by intensifying market anxieties over a potential U.S. interest rate hike following a robust labor report. Concurrently, escalating military conflict in the Middle East drove crude oil prices upward, further amplifying global inflation concerns. By 0544 GMT, spot gold dropped 1% to $4,287.66 per ounce, building on a 3% decline from Friday that dragged the metal to its lowest valuation since late March. Meanwhile, U.S. gold futures for August delivery fell 1.2% to trade at $4,311.
Market analysts noted that the sell-off stems directly from aggressive hawkish expectations being priced into Federal Reserve futures, with rising benchmark 10-year U.S. Treasury yields further compounding the pressure on non-yielding bullion by increasing its opportunity cost. This financial shift coincided with geopolitical escalation, as Israel reported striking military targets in central and western Iran on Monday. The actions proceeded despite reports that U.S. President Donald Trump had previously urged Israeli Prime Minister Benjamin Netanyahu to pause further military operations.
In response to the strikes, crude oil surged by more than $3 a barrel, escalating fears that energy-driven inflation could compel central banks to implement more aggressive monetary tightening. Although gold is traditionally utilized as an inflationary hedge, its appeal diminishes in high-interest-rate environments. The economic backdrop remains firm, as May marked the third consecutive month of robust U.S. job creation. This sustained labor market momentum grants the Federal Reserve substantial leeway to maintain elevated borrowing costs as it navigates inflation risks compounded by the regional conflict.
Financial markets are increasingly anticipating a monetary tightening move before the close of 2026, with the CME Group’s FedWatch tool indicating a 72% probability of a rate hike by December. Supporting this outlook, Cleveland Fed President Beth Hammack stated on Friday that while the labor market sits near full employment, persistent inflationary pressures might necessitate an imminent rate hike to stabilize prices. The broader precious metals complex mirrored gold’s decline, with spot silver dropping 2.2% to $66.33 per ounce, platinum shedding 2.1% to land at $1,739.78, and palladium retreating 1.5% to $1,207.50.
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