Gold prices are on track for their worst monthly performance since October 2008, with spot gold falling 1.5% on Tuesday to $3,956.92 an ounce, bringing June’s loss to 12.7%. This marks the fourth consecutive monthly decline and the first quarterly drop since 2024, the largest since the second quarter of 2013. U.S. gold futures for August delivery also declined, losing 1.7% to $3,969.30.

The sell-off is driven by a potent combination: a strengthening U.S. dollar, which is headed for its second monthly gain, and a sharp repricing of Federal Reserve rate expectations. The war in the Middle East has sent energy prices soaring, fuelling inflation fears and erasing earlier bets on rate cuts. The CME FedWatch tool now shows traders pricing in a 65% probability of a rate increase in September, with three hikes expected this year. Higher rates diminish the appeal of non-yielding bullion, even as it is traditionally seen as an inflation hedge.

Viewed from London, Saxo Bank analyst Ole Hansen described the market’s failure to sustain gains as a sign of fragile sentiment, with traders “selling into strength rather than buying into weakness.” He noted that prices would need to break above $4,100 to suggest a low has been established. In the Gulf, iFOREX analyst Awad Issawi framed the correction as a healthy consolidation within a longer-term bull market, identifying the $3,700–$3,800 zone as critical support. A break below could open the path to $3,400, while renewed momentum could target $4,300 and eventually retest record highs near $4,600–$4,700. An OMFIF survey indicated that more central banks plan to reduce dollar holdings over the next decade, a structural factor that could underpin gold demand. In Iran, the global price drop, combined with news of potential U.S.-Iran talks in Doha—denied by Tehran—triggered a sharp fall in domestic gold and currency rates, with the rial strengthening and gold coins losing millions of tomans in a single session.

The immediate focus turns to U.S. employment data this week, including the ADP report and nonfarm payrolls, which will shape the Fed’s next move. Simultaneously, any concrete developments in U.S.-Iran diplomacy, even if unconfirmed, will be scrutinised for their potential to ease energy-driven inflation pressures and alter the rate outlook.