On Thursday, marking the 139th day of the U.S.-Iran conflict, President Trump reportedly considered resuming full-scale military action against Iran to break the stalemate in the Strait of Hormuz and exert pressure on Tehran in nuclear negotiations.
extended losses on Thursday as the U.S. military resumed strikes over the past week, mostly targeting air defense and radar systems and missile and drone launch sites near the Strait of Hormuz.
On Wednesday, U.S. producer prices unexpectedly fell 0.3% in June, versus expectations for no monthly change, following softer consumer inflation data earlier this week. The back-to-back reports reinforced signs that underlying price pressures were easing and reduced expectations of an imminent Federal Reserve rate increase.
However, investors largely looked through the backward-looking inflation data as renewed fighting in the Middle East pushed higher for a fourth straight session. The latest escalation has revived concerns that higher energy costs could feed into future inflation, potentially limiting the Federal Reserve’s scope to ease policy despite the recent cooling in price pressures.
That uncertainty has kept pressure on gold. While softer inflation would normally weaken the dollar and support bullion by reducing expectations for higher interest rates, renewed gains in oil have raised doubts about whether the recent disinflation trend can be sustained.
Fed Chair Kevin Warsh reiterated this week that policymakers remain committed to returning inflation to the central bank’s 2% target, while stressing they would be prepared to adjust interest rates if price pressures prove more persistent. He also downplayed concerns that heavy investment in artificial intelligence would, by itself, fuel broader inflation.
However, investors largely looked through the backward-looking inflation data as renewed fighting in the Middle East pushed crude prices higher for a fourth straight session. The latest escalation has revived concerns that higher energy costs could feed into future inflation, potentially limiting the Federal Reserve’s scope to ease policy despite the recent cooling in price pressures.
Elsewhere, Fed Governor Lisa Cook said she would support further policy action if inflation remained elevated, while New York Fed President John Williams said current interest rates were “well positioned” to bring inflation back toward target, underscoring that officials remain cautious despite the recent cooling in price data.
Higher oil prices can complicate the Federal Reserve’s policy outlook by increasing the risk that inflation remains above target. If policymakers are forced to keep interest rates elevated for longer, higher Treasury yields and a firmer U.S. dollar can reduce demand for non-yielding assets such as gold while making bullion more expensive for overseas buyers.
Meanwhile, the U.S. engaged in almost 40 days of full-on war with Iran before pulling back during a ceasefire struck in early April. Trump faces peril at home and abroad if he ditches diplomacy and returns to an all-out military offensive.
Now, the key question is whether the Federal Reserve views the latest rise in energy prices as a temporary supply shock or as a development that could spill over into broader inflation.
Undoubtedly, gold futures could remain under bearish pressure for a long as I discussed the reasons in detail in my previous analysis Gold Faces a Breakdown Test as Fed and Hormuz Risks Collide (https://www.investing.com/analysis/gold-faces-a-breakdown-test-as-fed-and-hormuz-risks-collide-200683986 ) as Trump is stuck in a mess of his own (and Israel’s) making and can’t find a face-saving way out of it, while the Iranians assume they are still in conflict and are therefore trying to maximize their gains and risk overplaying their hand.
Today, U.S. Treasury yields and euro zone government bond yields held high on Wednesday, as an aggressive escalation in the Middle East reignited inflation anxieties, completely overshadowing cooling inflation data.
Fixed-income markets faced sustained selling pressure as investors weighed a dramatic overnight pivot in U.S. foreign policy.
President Donald Trump announced the reimposition of a strict U.S. naval blockade on Iranian ports alongside an ultimatum that unless Tehran returns to the negotiating table, the U.S. will launch targeted airstrikes against domestic infrastructure, including power plants and bridges, as early as next week.
The severity of the geopolitical risk premium hit the short end of the U.S. yield curve hardest, directly altering interest rate expectations. The , which is highly sensitive to immediate central bank policy shifts, pressed upward to trade within striking distance of its highest level since February 2025 – 4.2%.
On the daily chart, after opening the day at $4,063.75, tested the day’s high at $4,067.10, and day’s low at $4,028.27, gold futures are trading at $4,036.20, just trying to defend the key support at $4,030, look ready to find a breakdown below this key support, as trading much below the immediate resistance at the 9 EMA ($4,078), which has pierced the key support at the 200 EMA ($4,320), along with 20 EMA ($4,129) and 50 EMA ($4,289); forming a “Bearish Crossover”.
Undoubtedly, bearish pressure could remain elevated on Thursday and Friday, as major economic data have already been announced, and gold bugs now await the Fed’s meeting on July 27-28, 2026.
I conclude that a sustainable move below the key support at $4,030 will push the futures to test the next key support at $3,955.93 in today’s session, while Friday could experience a heavy sell-off before the week’s close, as President Trump changes his stance, especially on weekends.
Disclaimer: Readers are advised to take any position in gold at their own risk, as this analysis is based solely on observations.
