Gold drops on US-Iran hostilities ahead of US inflation report

XAU/USD analysis

The United States launched military strikes against Iran on Tuesday ^[1] after President Trump accused Tehran of downing a US Apache helicopter ^[2]. This follows Israel-Iran hostilities earlier in the week ^[3]. The flare-up raises concerns over prospects of a diplomatic solution, sustaining risk-off dollar inflows.

With the Strait of Hormuz still under a dual blockade restricting energy flows, oil prices remain elevated, fuelling inflation. The last US CPI report showed accelerating and broadening price pressures, driving the Fed toward a more hawkish stance and supporting market bets for a rate hike. Another hot print later today would cement these expectations as the Fed meets next week amid a wave of pivotal central bank decisions.

Continued geopolitical uncertainty and higher-for-longer Fed expectations sustain dollar demand and weigh on gold, which is having another difficult month. XAU/USD extends its decline deeper into bear territory, bringing it to the verge of new 2026 lows. However, the move is technically stretched, which could facilitate a recovery toward the EMA200 that would challenge the downside bias.

Any downside surprise in today's inflation print could ease rate hike expectations and lend support to the case for a temporary energy-driven impulse. This will be the first decision under President Trump's pick Kevin Warsh, and markets will be watching closely for signals on the Fed's intended path. Meanwhile, the US President insisted that a deal with Iran to reopen the Strait of Hormuz is "two or three" days away ^[4], the military strike was described as a "self-defence" move and Iran and Israel have paused strikes against each other. A successful resolution to the Middle East conflict would improve sentiment and could ease inflation fears, pulling the rug from under the dollar and allowing gold to rebound.