Precious metals fell sharply on Wednesday, with gold dropping around 3% toward $4,100 an ounce and silver also retreating, as renewed tensions in the Middle East pushed oil prices higher and stronger US inflation reinforced expectations of tighter monetary policy.

Spot gold fell to its lowest level since November 2025 after the US launched new strikes against Iran following the downing of an American helicopter, raising concerns about the durability of a fragile ceasefire and prospects for a broader peace agreement.

Silver also came under pressure, declining 1.6% to $64.3 per ounce.

The latest escalation prolonged the near-complete closure of the Strait of Hormuz, a critical route for global energy shipments, keeping upward pressure on crude oil prices.

Meanwhile, annual inflation in the US accelerated to 4.2% in May, its highest level since April 2023.

Among major components, energy prices recorded the sharpest increase, rising 23.5% year-on-year, while food inflation stood at 3.1%.

Monthly inflation eased slightly to 0.5% in May from 0.6% a month earlier.

Rising energy costs linked to the conflict have heightened concerns that inflationary pressures in the US could remain persistent.

The latest inflation data strengthened expectations that the Federal Reserve could keep interest rates elevated for longer or implement additional rate hikes before the end of the year.

Higher interest rates typically weigh on non-yielding assets such as gold and silver by increasing the attractiveness of interest-bearing investments.

Silver tracked broader losses across the precious metals complex as investors assessed the impact of higher energy prices, firmer rate expectations and reduced demand for traditional safe-haven assets.

Stronger-than-expected US employment data had already reinforced expectations that the Fed may tighten policy further before year-end.

Despite gold's traditional role as a hedge against geopolitical risk and inflation, analysts said fears of higher borrowing costs and stronger real yields were outweighing safe-haven demand. (AA)

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