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By 10 a.m., spot gold was down 0.8 percent to $4,501.54 an ounce, while U.S. gold futures lost 1.3 percent to $4,532.22 an ounce.
The trigger for the tensions was new military strikes. The U.S. military said it attacked air defense facilities and drone infrastructure in Iran over the weekend after Tehran shot down a U.S. drone, according to Washington. In response, Iran struck an airbase used by US forces. At the same time, Israel expanded its military operation in southern Lebanon, where clashes with Hezbollah continue.
As recently as a week ago, markets were expecting tensions to ease. Reports of a possible extension of the truce between the U.S. and Iran and discussion of the resumption of safe navigation through the Strait of Hormuz supported gold quotes. However, after the new strikes, hopes for a quick diplomatic solution weakened considerably.
Risks were amplified by the rise in the price of oil
Nevertheless, the status of a protective asset did not help the precious metal to avoid decline. The market is increasingly concerned about the probability of accelerating inflation on the back of rising oil prices. The growth of energy costs may complicate the Fed’s task to contain price pressure and force the regulator to keep tight monetary policy longer.
Additional pressure on gold came from the dollar. The U.S. currency index rose 0.1% in the Asian session, making the metal more expensive for buyers outside the United States.
Other precious metals – in the plus
In the other precious metals market, silver rose 0.5% to $75.69 an ounce and platinum added 1.1% to $1,940.95.
Industrial metals also traded in plus territory. Copper futures on the London Metal Exchange rose 0.3% to $13,663.33 a ton. U.S. copper futures rose 0.3% to $6.44 per pound.
