Gold feels the pressure

The mood around gold shifted this week and the pressure is showing.

US inflation data came in slightly lower than expected, even if it's still running above the Fed's preferred level. That's not enough to bring rate cuts back into the conversation just yet, but it does chip away at the idea that interest rates need to stay higher for longer.

The ceasefire dream continues to fade

Any cautious optimism from the weekend's ceasefire talks didn't last long. Overnight, the US launched strikes on Qeshm Island in the Strait of Hormuz, targeting an Iranian military ground control station. Iran responded with ballistic missiles and drones aimed at US bases, with Kuwait's international airport reportedly sustaining significant damage.

Ceasefire negotiations had already stalled over the weekend, with reports that the US had requested changes to the terms of a potential deal, including provisions around the strait itself and Iran's enriched uranium stockpile. Iran's foreign ministry pushed back, saying Washington keeps shifting the goalposts.

Crude oil surged nearly 3% overnight. For gold, this matters. The Strait of Hormuz handles a meaningful chunk of global oil supply. Every fresh headline is moving the market, and that's unlikely to change until there's something more concrete to trade on.

Eurozone inflation creeps higher

It's not just the US feeling the heat. Eurozone inflation climbed to 3.2% in May, up from 3.0% in April (its highest level since September 2023) and still well above the ECB's 2% target. Energy costs were the main culprit, surging sharply on the back of Middle East supply constraints. The pattern is hard to miss, the same conflict driving headlines on gold is also pushing up the energy prices keeping inflation elevated across Europe.

The Fed guessing game continues

The Fed is widely expected to leave rates unchanged in June, so the decision itself may not be the real market mover. The more important question is what comes next.

For gold, the focus has moved beyond June. What matters is whether upcoming data points toward a softer Fed stance later in the year, or reinforces the case for higher rates for longer.

That puts Friday's nonfarm payrolls report firmly in focus. A softer reading could strengthen the argument that the US economy is beginning to cool, potentially softening the case for keeping rates elevated.

Gold slips

Spot gold has pulled back nearly 2% to around $4,450 per ounce. That might look like the market flinching at the escalation, but it's maybe more nuanced than that. When geopolitical risk spikes sharply, risk-off moves can hit gold alongside everything else in the short term, as traders rebalance positions. The fundamentals that are driving gold haven't disappeared. Whether this is a pause or something more will depend on how the next few weeks play out.

In summary

Gold dipped nearly 2% to around $4,450 this week as overnight US strikes on Iran and retaliatory missile attacks on Kuwait and Bahrain rattled markets. Softer US inflation data had offered a quietly supportive backdrop, but Eurozone inflation climbing to a near three-year high of 3.2%, driven largely by energy costs tied to the Middle East conflict, reinforced just how tangled the global inflation picture has become. The Strait of Hormuz is firmly back in focus, sentiment is swinging on every headline, and Friday's payrolls report remains the one to watch.