Gold prices stabilized on Tuesday after hitting a one-and-a-half-month low the previous session, as traders weighed persistent inflation risks from the Middle East conflict against slightly softer U.S. Treasury yields and expectations for the Federal Reserve’s next moves.
Spot gold was down a modest 0.5% at $4,542.07 per ounce by mid-morning GMT. Prices had fallen to their lowest level since March 30 at $4,479.54 on Monday. U.S. gold futures for June delivery eased 0.3% to $4,545.50.
“Hawkish Federal Reserve expectations, driven by inflationary fears stemming from a protracted standoff in the Persian Gulf, are weighing on the precious metal,” said ActivTrades analyst Ricardo Evangelista.
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Investors remain focused on developments between the U.S. and Iran. Any escalation or prolonged disruption in the Strait of Hormuz could keep energy prices elevated, reinforcing higher-for-longer interest rate expectations.
Yields Ease Modestly but Remain Elevated
Yields on U.S. Treasurys pulled back slightly early Tuesday, offering a brief reprieve after sharp rises the previous session. The benchmark 10-year U.S. Treasury note yield fell more than 1 basis point to 4.6073%. The longer-dated 30-year Treasury bond yield held steady at 5.1428%, while the 2-year note yield dropped more than 2 basis points to 4.0695%.
This came after yields had surged on Monday, with the 10-year note briefly touching its highest level in 15 months. A Bank of America survey released Tuesday revealed that 62% of global fund managers now expect 30-year Treasury yields to reach 6%, the highest level since late 1999, compared to just 20% who target 4%. Such a move would represent a significant increase of roughly 86 basis points from current levels and would further pressure non-yielding assets like gold.
Yields in Europe also remained elevated but eased modestly. Germany’s 10-year Bund yield dropped more than 1 basis point to 3.1471%, while the UK’s 10-year gilt yield stayed above 5% at 5.115%. Longer-dated debt showed similar pressure, with German 30-year bunds at 3.6836% and UK 30-year gilts at 5.773%.
Mohit Kumar, chief economist and strategist at Jefferies, highlighted the key drivers, saying: “Even if we get a [Middle East] deal… oil is not going back to pre-war levels. We think it’s going to be 25-30% higher in six months’ time.”
He noted that governments are likely to roll out fuel subsidies for households, which will increase borrowing and add upward pressure on the long end of the yield curve. However, Kumar cautioned against overinterpreting current market pricing.
“While the market is currently pricing in rate hikes, it’s not justified given that inflation is likely to rise as much as growth is likely to fall,” he said.
Oil Holds Firm Above Key Levels.
Brent crude was last seen 1.5% lower at $110.38 per barrel, while U.S. West Texas Intermediate held steady near $108.67. Despite the modest pullback, both benchmarks remain elevated, reflecting ongoing risks around the Strait of Hormuz and potential supply disruptions.
Outlook for Gold
Higher Treasury yields raise the opportunity cost of holding gold, which offers no yield. This dynamic has dominated price action recently, even as the metal retains its traditional safe-haven appeal amid geopolitical uncertainty. President Trump’s announcement on Monday that he had paused planned strikes on Iran after receiving a peace proposal provided some relief, but markets remain wary of a prolonged conflict.
Wednesday’s release of the Federal Reserve’s latest policy meeting minutes will be closely watched for clues on how policymakers view the balance between inflation risks and growth concerns.
However, gold’s performance reflects a classic tension: it benefits from geopolitical risk and inflation hedging properties, but suffers when those same forces drive real yields higher and strengthen the dollar. Analysts believe the current environment suggests gold may remain range-bound in the near term unless there is either a significant de-escalation in the Middle East or clearer signs that the Fed will look past near-term inflation pressures.
Longer-term investors continue to view gold as a critical diversifier in portfolios facing elevated geopolitical, inflationary, and fiscal risks. However, in the short term, the path of least resistance appears dictated by the interplay between energy markets, bond yields, and central bank signaling.