Gold Prices Struggle as Middle East Tensions Rise and US Data Fuels Rate Cut Speculation

Gold prices hovered near recent highs on Monday as investors weighed rising geopolitical tensions in the Middle East against a backdrop of weakening U.S. economic data, raising fresh questions about the Federal Reserve’s next move on interest rates.

Spot gold was little changed at $3,380.87 an ounce as of 11:30 a.m. in New York, holding gains from last week’s nearly 4% rise. That rally was driven by Israel’s expanded military operations against Iran, which have brought renewed focus on the region’s instability. The Biden administration has so far avoided direct military involvement, but growing coordination between the U.S. and Israel has fueled speculation about deeper American engagement.

Despite ongoing strikes between Israel and Iran, gold has seen limited upside since last week's surge. Analysts say the market is behaving in line with historical patterns. “Gold typically spikes on the initial shock of geopolitical events, but unless those conflicts escalate into broader economic disruptions, the effect tends to be short-lived,” said Carsten Menke, head of next generation research at Julius Baer Group Ltd.

The muted response also reflects cautious optimism that crude oil’s recent price gains won’t lead to sustained inflation. Brent crude remains above $82 per barrel, but markets are pricing in the possibility that this is a temporary spike rather than the beginning of a broader inflationary trend.

At the same time, investors are digesting a wave of weaker-than-expected U.S. economic figures. Retail sales in May rose just 0.1%, missing forecasts of 0.3%, while housing starts fell to a four-year low. Industrial production also edged down, pointing to a softening in both consumer demand and manufacturing output.

These data points have strengthened expectations that the Federal Reserve may begin cutting rates later this year. According to CME’s FedWatch tool, traders now see a nearly 65% chance of at least one rate cut by September. However, markets are unlikely to see any immediate change, with the Fed expected to keep rates steady at its June and July meetings.

Wednesday’s FOMC statement and updated economic projections will be closely scrutinized. While no rate move is expected, revisions to growth and inflation forecasts could signal how soon the Fed might pivot toward easing.

Gold remains about $115 below its record high set in April but is on track for a sixth consecutive monthly gain—a streak not seen since the early 2000s. Continued rate cut speculation, combined with lingering geopolitical risk, is helping to support the metal despite a stronger dollar.

The Bloomberg Dollar Spot Index rose 0.2% on the day, reflecting modest greenback strength. Meanwhile, other precious metals also moved higher: silver climbed 0.8%, platinum gained 0.6%, and palladium rose 1.2%, supported by technical buying and a weaker economic outlook.

With markets caught between geopolitical flashpoints and a fragile economic recovery, gold appears set to trade in a narrow band in the near term, awaiting clearer signals from both Washington and global central banks.

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