Gold Slides 3.5% as Hot U.S. Inflation Tempers Rate-Cut Bets Despite Middle East Risks

Gold extended losses on Wednesday after stronger-than-expected U.S. inflation data for May prompted markets to scale back expectations for Federal Reserve easing this year. Spot prices slid about 3.5%, drifting toward $4,100 per ounce, the weakest level since late November 2025. Safe-haven demand tied to Middle East tensions provided little support. U.S. inflation accelerated to its highest level since 2023. Headline inflation rose 4.2% year over year in May, the hottest reading since April 2023, led by ongoing gains in energy costs. U.S. Bureau of Labor Statistics data showed energy prices increased 3.9% in May after a 3.8% rise in April and a 10.9% jump in March. Energy items accounted for more than 60% of the monthly increase in consumer prices. Core inflation, which excludes food and energy, climbed to 2.9%, the highest level in nearly seven months. Real incomes remained under pressure as inflation outpaced wage growth for a second straight month. Average hourly earnings rose 3.4% year over year, below the 4.2% inflation rate, signaling continued erosion in purchasing power. The BLS said real average weekly earnings fell 0.2% month over month and 0.7% year over year in May, the steepest annual decline since February 2023. Household budgets continue to be squeezed by expenses including gasoline, food, electricity and healthcare. The inflation report also weighed on gold by cooling rate-cut expectations. Traders slightly reduced bets on Fed easing for 2026. While markets still price in one 25-basis-point cut before December, expectations for a rapid shift to lower rates have weakened in the near term. Persistently high rates tend to be a headwind for gold because it offers no yield; elevated Treasury yields can keep capital tilted toward income-generating assets. Geopolitical risks remained elevated, but the Middle East backdrop has not sparked a broad risk-off bid for bullion. Reports said the United States and Iran have again exchanged strikes in the region, with limited progress in diplomatic efforts. Donald Trump also hardened his rhetoric, warning Iran would "pay a price" if talks continue to drag on and suggesting further strikes on Iranian infrastructure could be possible if negotiations fail. Separate reports said Qatari mediators traveled to Tehran to help facilitate contact between the parties. Overall, gold is being tugged in opposite directions: inflation and regional tensions typically bolster safe-haven demand, while high interest rates and fading expectations for near-term rate cuts continue to cap the metal's performance.