Gold falls as Middle East tensions lift dollar

Spot gold dropped about 1.9% on Thursday to roughly $3,985 an ounce after an intraday fall near 2%, marking its weakest level since July 1. US gold futures declined about 1.5% to near $3,992 as oil and Treasury yields moved higher, reducing demand for a non-yielding asset.

Red Sea export threat

Officials said Iran asked the Houthi movement to stand ready to close the Red Sea export route if US strikes Iranian power infrastructure, a development that kept Brent close to a one-month high and pushed energy-risk premiums higher. The oil move fed market concern that energy-driven inflation could revive, putting upward pressure on Treasury yields and supporting the dollar.

Data showed US consumer inflation slowed in June and producer prices declined this week, yet markets nonetheless moved toward tighter monetary expectations. Traders are pricing roughly a 53% chance of a September rate increase, according to the CME FedWatch Tool, a shift that has amplified selling in bullion despite softer official inflation prints.

Short-term positioning will hinge on oil flows and Treasury yield moves; watch price action through Friday, July 17, as markets reassess whether geopolitical-driven energy risk or the latest inflation readings will dominate expectations into September.