Gold Weakens as Middle East Risks Lift Dollar and Yields
Gold prices (XAU/USD) fell on Wednesday (June 3) and hovered around US$4,455, down about 1.85% so far this week. Pressure arose as the latest escalation in the Middle East dimmed hopes for an imminent US-Iran peace deal.
US Central Command (CENTCOM) said US forces intercepted several Iranian ballistic missiles and drones targeting Kuwait and Bahrain on Tuesday. In response, the US attacked an Iranian military ground control station on Qeshm Island, located in the Strait of Hormuz.
On the diplomatic front, US President Donald Trump denied Iranian media reports that talks had stalled. Trump also said Iran had agreed not to acquire nuclear weapons and that Iran's Supreme Leader, Ayatollah Mojtaba Khamenei, was involved in the talks with the US.
Despite claims that negotiations are ongoing, the market still tends to favor the US dollar as a hedge against the uncertain status of the talks, persistent regional tensions, and the blockade around the Strait of Hormuz keeping oil prices high. Rising oil prices have heightened inflation concerns, shifting market focus to the risk of "energy-driven prices" that could hinder monetary policy easing.
Within this framework, interest rate expectations have again weighed on gold: the market expects the Fed to hold rates until the end of the year, but still places a roughly 40% chance of a 25-bps hike at its December meeting. When interest rates and yields move higher, gold's appeal as a non-yielding asset tends to weaken, providing additional support for the dollar.
Data-wise, the ADP Employment Change rose to 122,000 in May from 105,000 in April, above the 117,000 forecast, reinforcing perceptions of labor market resilience. The next focus will be on the release of the ISM Services PMI for the US session, the direction of oil prices related to the Strait of Hormuz, and the movement of the dollar and US yields, which will determine whether gold pressure continues or begins to ease.
Source: Newsmaker.id
