U.S. Federal Reserve officials, their policy outlook roiled by a war that has stranded a fifth of global oil supply, meet this week to debate whether the Iran conflict is more likely to disrupt economic growth, threaten more persistent inflation, or create a confounding mix of economic slowing and rising prices.

Mindful of how pandemic-era supply shocks put the Fed on a path to miss its 2% inflation target for five years running, policymakers are more likely to strike a cautious if not outright hawkish tone this week. Inflation is mired about a percentage point above target and is poised to move higher, particularly if oil prices that jumped almost 50% in two weeks remain elevated.

"A question that was almost unthinkable two weeks ago is now being more heavily debated: Could the Fed raise rates in 2026?," Matthew Luzzetti, chief U.S. economist for Deutsche Bank Securities, wrote last week. It’s a possibility some Fed policymakers were ready to put on the table even at their last meeting, though Luzzetti concluded rate increases still were unlikely, absent a clear jump in inflation expectations.

Officials will also have to weigh whether the developing economic shock, expected to show up not just in higher prices but also in tighter financial conditions, lower asset prices and more uncertainty, will be the factor that breaks the economy’s resilience.

"Just when it seemed the worst of the policy chaos was over, there is the Iran war to deal with," Dario Perkins, chief economist for global macro at TS Lombard, wrote last week. He recounted the repeated stress the economy has navigated from the pandemic to the inflation and rapid Fed rate hikes that followed and then the tariff, immigration and other policy shifts since President Donald Trump’s return to office. "Our baseline assumption is that the conflict will be short-lived and ’this too shall pass.’ But..could the energy crisis be one shock too many?"

Potential faultlines include February’s loss of 92,000 jobs, middle- and lower-income consumers already stretched by high prices and concerns about credit tightening, particularly if asset prices keep declining.

As of Sunday, the average U.S. retail gasoline price had climbed nearly 25% to the highest since October 2023 in the two weeks since the U.S. and Israel launched attacks on Iran, according to AAA, prompting U.S. officials to predict hostilities would end sooner than later.

"I think that this conflict will certainly come to the end in the next few weeks - could be sooner than that. But the conflict will come to the end in the next few weeks, and we’ll see a rebound in supplies and a pushing down in prices after that," U.S. Energy Secretary Chris Wright told ABC’s "This Week" program on Sunday.    

PROJECTING THROUGH FOG OF WAR 

The Fed is expected to hold interest rates steady at its policy meeting on Tuesday and Wednesday. Data since the last meeting showed little change in the underlying outlook, and the Fed is transitioning to a new leader, Kevin Warsh, nominated by Trump and expected to eventually win Senate confirmation to take over from current Chair Jerome Powell after mid-May. 

The most recent data, however, seems almost ancient two weeks after the start of intense U.S. and Israeli airstrikes and Iranian counterattacks that have all but closed the strategic Strait of Hormuz. At this point Trump has set out no clear set of objectives or timeline for ending the war.

Fed officials, however, will still submit new economic projections, making their best guess about whether what’s about to play out will require a firm stand against inflation with continued tight monetary policy or rate cuts to offset an economic slowdown. 

In the first Fed meeting following Russia’s invasion of Ukraine in 2022, Powell walked through the list of issues to consider.

The impact is "highly uncertain," Powell said at the time. "In addition to the direct effects from higher global oil and commodity prices, the invasion and related events may restrain economic activity abroad and further disrupt supply chains—which would create spillovers to the U.S. economy through trade and other channels. The volatility in financial markets, particularly if sustained, could also act to tighten credit conditions and affect the real economy."

’OUTLOOK HAS TURNED MURKIER’

The situation now is even more dynamic, with the U.S. a combatant and a large share of global oil production and other products unable to move. 

Some issues being raised are imponderably broad if consequential, such as whether the rise in Treasury yields shows a loss of U.S. privilege in global markets, an expectation of higher inflation or something else. Analysts are not so much making forecasts as discussing different scenarios, with the "base case" usually involving a short-lived conflict and eventually falling oil prices, and more damaging outcomes involving an extended standoff between the U.S. and Iran.

Fed officials were surprised last year at how well the economy absorbed higher tariffs, labor market disruptions and an unpredictable environment under Trump. Through all of that U.S. output kept growing even as job creation slowed and inflation remained lodged above target.

Given current uncertainty, the easiest approach now may be to stay close to December’s outlook, which showed a median forecast of just one rate cut this year.

But the spread among individual forecasts may itself tell a tale: Issued after the Fed cut rates by a quarter percentage point at the December meeting, six of 19 officials indicated rates should have stayed higher. The hawkishness turned up another notch in January when minutes of that meeting showed several policymakers were ready to open the door to rate hikes this year, "reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels."

Inflation concerns have only been stoked higher since, while worries about growth and the economy’s cracking point may also intensify - the worst of both worlds for central bankers to try to predict or craft a message.

"The economic outlook has turned murkier as the conflict drags on and oil prices remain high and volatile," Subadra Rajappa, head of research at Societe Generale, wrote last week. "While our base case continues to assume a timely resolution and no sustained economic fallout from this conflict...higher inflation and deteriorating labor market conditions make it difficult for the Fed to balance its dual mandate." 

U.S. President Donald Trump told G7 leaders during a virtual meeting this week that Iran is “about to surrender,” according to a report by Axios citing three officials from G7 countries briefed on the call.

During the discussion on Wednesday morning, Trump reportedly told allies he had “got rid of a cancer that was threatening us all,” while highlighting the results of the U.S. military operation known as “Epic Fury.”

According to Axios, Trump also said the situation inside Iran had become so unstable that it was unclear who could formally declare a surrender.

“Nobody knows who is the leader, so there is no one that can announce surrender,” Trump said during the call, the report added.

The comments come as the war in the Middle East approaches its second week, with both sides continuing to exchange drone and missile strikes across the region.

Trump struck an aggressive tone again on Friday, referring to Iran’s leadership as “deranged scumbags” and saying it was his “great honor” to kill them.

Meanwhile, domestic pressure on the administration increased following the loss of a U.S. military aircraft in the region.

U.S. Central Command said a KC-135 refueling aircraft went down in western Iraq at around 2 p.m. Eastern Time on March 12. Four of the six crew members on board have been confirmed dead, while rescue efforts are ongoing.

“The circumstances of the incident are under investigation,” Central Command said in a statement posted on social media, adding that the loss of the aircraft was not caused by hostile fire or friendly fire.

While Iran may be losing in a conventional military sense — something President Donald Trump continues to emphasize — Tehran’s strategy of disrupting the global economy by threatening the Strait of Hormuz and pushing oil prices higher is proving highly effective. Analysts warn that there is no clear military solution to reopening the Strait of Hormuz.

"This is the dilemma facing stocks – while Trump might be looking for an offramp, he is not fully in control of the conflict," Vital Knowledge analyst Adam Crisafulli said in a morning note on Friday.

"The silver lining on Iran is that both sides are holding back, providing room for compromise (or on a darker note, runway for escalation) – the US/Israel have not targeted Iran’s oil infrastructure in a meaningful way (and Iran is still exporting oil from Hormuz) while Iran’s proxy, the Houthis in Yemen, have stayed on the sidelines."

Gold prices fell in Asian trade on Thursday, sinking back into a trading range seen for more than a week as few signs of de-escalation in the U.S.-Israel war with Iran spurred flows into oil and the dollar. 

While bullion continued to flit between the $5,000-$5,200 an ounce level, it still remained relatively upbeat, as concerns over the war kept some haven demand in play.

Spot gold fell 0.6% to $5,147.05/oz by 01:33 ET (05:33 GMT), while gold futures fell 0.5% to $5,151.86/oz. 

Gold falls as Iran conflict spurs inflation fears, boosts dollar

Weakness in gold came as continued hostilities between the U.S., Israel, and Iran kept market focus squarely on the dollar and oil.

The dollar index rose 0.2% in Asian trade and was close to a two-month high. 

Oil prices jumped sharply on Thursday, briefly rising past $100 a barrel after media reports said two international oil tankers had been struck near Iraq. Other reports showed Oman evacuating a key oil export terminal, while Iran was seen blocking the Strait of Hormuz-- a key supply channel for roughly a fifth of the world’s oil. 

Higher oil prices kept markets largely on edge over a long-term increase in inflation. This in turn fueled concerns over more hawkish central banks in the coming months– a scenario that bodes poorly for gold.

Gold falls as Iran conflict spurs inflation fears, boosts dollar

Weakness in gold came as continued hostilities between the U.S., Israel, and Iran kept market focus squarely on the dollar and oil.

The dollar index rose 0.2% in Asian trade and was close to a two-month high. 

Oil prices jumped sharply on Thursday, briefly rising past $100 a barrel after media reports said two international oil tankers had been struck near Iraq. Other reports showed Oman evacuating a key oil export terminal, while Iran was seen blocking the Strait of Hormuz-- a key supply channel for roughly a fifth of the world’s oil. 

Higher oil prices kept markets largely on edge over a long-term increase in inflation. This in turn fueled concerns over more hawkish central banks in the coming months– a scenario that bodes poorly for gold.

The U.S. dollar strengthened slightly on Wednesday, as investors assessed the potential trajectory of the Iran conflict and awaited a fresh reading of U.S. consumer price inflation.

By 06:06 ET (10:06 GMT), the U.S. dollar index, which tracks the greenback against a basket of currency peers, had risen by 0.2% to 99.02. The euro was mostly unchanged against the dollar, while the British pound inched up by 0.2% to $1.3441.

In a note, analysts at ING flagged that the overall foreign-exchange market remains "strongly driven" by recent wild fluctuations in oil prices due to the war in Iran.

Attention is firmly fixed on the Strait of Hormuz, the narrow waterway south of Iran through which a fifth of the world’s oil flows, much of it destined for countries across Asia. Fears of Iranian attacks have led to a pile-up of vessels on either of the strait, with container companies attempting to guard the safety of crews and struggling to find insurance for sailings.

Brent futures, the global benchmark, now hover around $90 a barrel after having surged to $120 a barrel earlier this week. Gasoline prices in the U.S. have jumped, possibly putting upward pressure on inflation that could lead the Federal Reserve to take a more hawkish monetary policy stance. Higher interest rates may attract more foreign investment, further bolstering the dollar.

Oil prices have been sensitive to a slew of headlines out of the Middle East. A claim by the U.S. Energy Secretary that the military had escorted a tanker through the strait sent Brent oscillating between $81 a barrel and $92 a barrels.

U.S. President Donald Trump has threatened to ramp up American attacks on Iran after reports said that Tehran has placed naval mines across the Strait of Hormuz in recent days. Following a CNN report that Iran had put mines in the bottleneck, although not extensively yet, Trump said on Tuesday that Iran would be hit "at a level never seen before" should the Islamic Republic not remove them.

Meanwhile, the International Energy Agency has proposed the biggest-ever release of strategic oil reserves to help quell the recent ructions in oil prices caused by the Iran war, according to the Wall Street Journal.

Citing officials familiar with the matter, the WSJ said the release would surpass the 182 million barrels of oil that IEA member nations made available after Russia’s invasion of Ukraine in 2022. IEA countries are seen deciding on the proposal on Wednesday, the WSJ said.

Depending on the size of the reserve release, there could be some capping in oil prices in the coming days, the ING analysts said. However, they flagged that the release would be a "temporary measure," adding that "only military de-escalation can drive crude sustainably lower." The IEA’s move might be sending a "hidden signal" to markets that there are few expectations for an immediate ceasefire, they added.

"In our view, these mixed signals could prevent the dollar from dropping much further today unless there are some encouraging headlines on de-escalation," the ING analysts said.

U.S. inflation data ahead

Also on the radar for markets is a reading of U.S. inflation on Wednesday.

Headline U.S. consumer price growth is expected to stay fairly tame on a monthly basis in February, although the outlook for inflation has been darkened by the fighting in Iran.

Economists see the consumer price index -- a key gauge of U.S. inflation -- coming in at 0.3% month-on-month, compared to 0.2% in January. In the twelve months to February, CPI is tipped to equal January’s relatively muted pace of 2.4%.

Still, stripping out volatile items like food and fuel, so-called "core" consumer prices are anticipated to rise by 0.2%, down from 0.3% previously thanks to moderating airfares and winter weather disruptions, analysts at Wolfe Research said. Year-on-year, the measure is expected to match the prior level of 2.5%.

"That said, seasonal strength in core goods, continued firmness in healthcare and other personal service prices, and a rebound in used vehicle prices are likely to offset part of that softness, keeping overall price pressures firm," the Wolfe analysts including Stephanie Roth said in a note.

Oil prices plummeted 7% on Tuesday after soaring to a more than three-year high in the previous session as U.S. President Donald Trump predicted the war in the Middle East could end soon, easing concerns about prolonged disruptions to oil supplies.

Brent futures were down $6.75, or 6.8%, to $92.21 a barrel at 1012 GMT, while U.S. West Texas Intermediate (WTI) crude was down $6.41, or 6.8%, to $88.36 a barrel. Both contracts fell as much as 11% earlier.

Volumes in Brent dropped to about 213,000 contracts, the lowest amount since February 27, just before the start of the conflict. Volumes in WTI fell to 212,000, the lowest since February 20. 

Oil surged to more than $119 barrel on Monday to its highest since mid-2022 as supply cuts by Saudi Arabia and other producers stoked fears of major disruptions to global supplies.

Prices later retreated after Russian President Vladimir Putin held a call with Trump and shared proposals aimed at a quick settlement to the war, according to a Kremlin aide, easing concerns about supply. 

Trump said on Monday in a CBS News interview that he thought the war against Iran was "very complete" and Washington was "very far ahead" of his initial four- to five-week estimated timeframe.

"Clearly Trump’s comments about a short-lived war have calmed markets. While there was an overreaction to the upside yesterday, we think there is an overreaction to the downside today," said Suvro Sarkar, energy sector team lead at DBS Bank, adding that the market was underappreciating risks at these levels for Brent. 

"Murban and Dubai grades are still well above $100 per barrel, so practically nothing much has changed in terms of ground realities," he added, referring to benchmark Middle Eastern oil grades.

In response to Trump, Iran’s Islamic Revolutionary Guards Corps said they would "determine the end of the war" and Tehran would not allow "one litre of oil" to be exported from the region if U.S. and Israeli attacks continued, state media reported on Tuesday.

Meanwhile, Trump is considering easing oil sanctions on Russia and releasing emergency crude stockpiles as part of a package of options aimed at curbing spiking prices, according to multiple sources.

"Discussions around easing sanctions on Russian oil, comments from Donald Trump hinting that the conflict could eventually de-escalate, and the possibility of G7 countries tapping strategic oil reserves all pointed to the same message - that oil barrels will somehow continue to reach the market," Priyanka Sachdeva, a Phillip Nova analyst, said in a note on Tuesday. 

"Once traders sensed that supply routes could still be maintained, the initial ’panic premium’ that had pushed prices above the $100 mark yesterday started to fade, and oil prices quickly pulled back."

Goldman Sachs said because the situation remains fluid, it was not changing its oil price forecast for Brent at $66 per barrel in the fourth quarter 2026 and WTI at $62 per barrel. 

G7 nations said on Monday they were prepared to implement "necessary measures" in response to surging global oil prices but stopped short of committing to the release of emergency reserves.

Gold prices fell on Monday but traded above their session lows as an escalation in the U.S.-Israel war with Iran spurred flows into the dollar and oil. 

Bullion prices remained well above $5,000 an ounce as heightened geopolitical tensions kept investors biased towards safe havens. 

Spot gold fell 1% to $5,117.23/oz by 05:20 ET (09:20 GMT), while gold futures fell 0.7% to $5,124.66/oz. 

Spot gold had fallen as low as $5,015.23/oz earlier in the day. 

Gold remains well above $5,000/oz as Iran conflict drives haven bids

While the yellow metal has benefited from increased haven demand with the onset of the U.S.-Israel war with Iran, its gains have been tempered by concerns that the inflationary effects of the war could elicit a more hawkish stance from major global central banks.

This saw the dollar outpace gold over the past week, while oil prices led commodity gains as the Iran war pointed to increased supply disruptions in crude markets. 

Both the dollar and oil surged on Monday after U.S. and Israeli strikes on Iran’s oil facilities marked a potential escalation in the war. The dollar index jumped 0.6%, while Brent oil rallied as much as 30% and blew past $100 a barrel. 

Oil tempered some of its gains after the Financial Times reported the G7 countries were considering releasing their emergency reserves in the face of supply disruptions. 

Separately, Bloomberg reported that Saudi Arabian producers were offering oil on spot markets, a rare move by the country. 

Iran over the weekend was seen attacking ships in the Strait of Hormuz, essentially blocking a shipping lane that accounts for roughly 20% of the world’s oil supplies. 

Gold had fallen some 2% last week, as the yellow metal continued to flit between $5,000/oz and a near $5,600/oz record high hit in late-January. The metal has since logged wild swings amid heightened speculative activity and growing uncertainty over the path of interest rates. 

Substantially softer than expected U.S. nonfarm payrolls data on Friday did spur some hopes for lower interest rates, although focus is now on the inflationary effects of high oil prices. 

Silver recovers after falling below $80/oz 

Other precious metal prices also broadly fell on Monday, with silver briefly falling below $80/oz.

But spot silver recouped a bulk of its losses and traded down 0.6% at $83.8025/oz. 

Spot platinum slid fell 0.6% to $83.8060/oz, also trading well above intraday lows. 

Like gold, the two precious metals have swung wildly since a major crash in late-January. But their relatively strong haven appeal and hopes of more industrial demand saw silver and platinum still trading higher for the year. 

Among industrial metals, copper futures fell 0.4% to $12,817.0 a ton. 

Futures linked to the major U.S. stock indices waver on Friday, with investors assessing fighting in the Middle East which has shown few signs of easing. Oil prices are on pace for big weekly gains, as fears surround supplies coming through the vital Strait of Hormuz waterway. Elsewhere, the February U.S. job report is due out, while Marvell Technology shares surge as artificial intelligence-driven data center spending fuels an annual revenue forecast increase.

1. Futures waver amid Iran conflict

U.S. stock futures ticked below the flatline, with sentiment fragile as the Iran conflict entered its seventh day.

By 04:20 ET (09:20 GMT), the Dow futures contract had dropped by 72 points, or 0.2%, S&P 500 futures had slipped 15 points, or 0.2%, and Nasdaq 100 futures had fallen by 55 points, or 0.2%.

The main averages on Wall Street fell in the prior session, dragged down by a climb in oil prices as fears continued to swirl around the choking off of supplies through the narrow Strait of Hormuz waterway south of Iran.

U.S. crude futures have spiked by almost 21% since the U.S. and Israel launched joint strikes against Iran. The fighting has since spread to other parts of the Middle East and Persian Gulf, threatening oil flows out of the major producing region.

Average gasoline costs in the U.S. have jumped by 27 cents following the start of the assault to $3.25 per gallon, according to Reuters, citing data from travel group AAA.

Faced with the prospect of increased gas prices, some investors have begun to worry that a prolonged conflict may spark a surge in inflationary pressures, which could delay the timeline for potential Federal Reserve interest rate cuts later this year. U.S. bond yields have risen, denting stocks.

Beyond the U.S., soaring crude prices have weighed on Asian equities and currencies, especially in South Korea, which heavily imports oil that passes through the Strait of Hormuz. South Korea’s Kospi index ended the session broadly unchanged, but has slipped by 10.56% over the past one-week period. The main indices in Europe were also on course for their biggest weekly drops since last April.

2. Oil on pace for weekly jump

Oil prices were on track to notch hefty weekly gains, as traders remain worried that the conflict will close off the Strait of Hormuz, through which roughly 20% of the world’s oil supply passes.

In a move to ease some these concerns, the U.S. has announced it would allow the sale of Russian oil to India for a period of 30 days.

"While this might help put some immediate downward pressure on the market, it is not a game-changer. The only way for prices to come down on a sustained basis is a resumption of oil flows through the Strait of Hormuz," analysts at ING said in a note.

The U.S. Treasury Department is also anticipated to unveil measures aimed at corralling energy prices through financial markets, Reuters reported.

Meanwhile, there have been few signs that the fighting will soon let up. Israel launched strikes at Hezbollah targets in Lebanon and targeted Tehran, while Iran’s Revolutionary Guards launched its own barrage of drones and missiles at Tel Aviv, media reports said.

Iran has also delayed the naming of a successor to Ayatollah Ali Khamenei, who was killed in U.S. and Israeli air strikes, the New York Times has reported. Ayatollah Khamenei’s son Mojtaba Khamenei is viewed as the frontrunner for the post, but U.S. President Donald Trump has called the possible appointment "unacceptable."

3. NFPs ahead

Although the Iran conflict has dominated the market narrative this week, investors will shift their gaze back to the state of the U.S. economy on Friday, when the February jobs report will be released.

The U.S. is expected to have added 58,000 roles last month, down from a blowout total of 130,000 in January, and the unemployment rate is seen matching January’s pace of 4.3%.

Fed policymakers have been keeping close tabs on a U.S. labor market which has been broadly resilient, even as hiring and firing activity has remained tepid. The Fed has left interest rates steady until more clarity emerges around the trajectory of employment.

Artificial intelligence may also color how the data is perceived. Workers and analysts have long flagged that the rise of new AI tools could lead to mass white-collar layoffs, as companies cite the technology as a means of cutting costs and increasing productivity. A move last week by Jack Dorsey’s payments firm Block to slash roughly 40% of its workforce heaped fuel on to these predictions.

4. Marvell spikes

Shares of Marvell Technology jumped by more than 14% in extended hours trading, after the semiconductor company lifted its full-year revenue outlook thanks to strong ongoing data center spending by AI hyperscalers.

Mega-cap companies like Amazon and Microsoft have made AI a central focus of their operations, and plan to shell out billions of dollars to rapidly build out the data centers that power and train the nascent technology.

Firms like Marvell, which designs and proves the internal plumbing that connects data between large-scale computer systems, have been key beneficiaries of the heavy spending.

CEO Matt Murphy told investors that the firm now expect annual revenue for its fiscal 2027 to rise by over 30% versus a year ago to nearly $11 billion. Marvell’s data center unit, in particular, is anticipated to power year-on-year revenue growth in each quarter of fiscal 2027, Murphy added.

5. Nvidia asks TSMC to stop producing China chips - FT

Nvidia has asked top contract chipmaker TSMC to stop producing chips intended for China amid continued sales headwinds from U.S. export controls, the Financial Times reported on Thursday. 

The world’s most valuable company has reallocated manufacturing capacity at TSMC away from its H200 chips to the next-generation Vera Rubin hardware, the FT reported, citing two people with knowledge of the matter.

The shift suggest that Nvidia no longer expects major sales of its H200 in China, especially amid increased uncertainty over U.S. export restrictions and Chinese regulatory pushback.

President Trump indicated in December that he would allow Nvidia to sell its H200 chips in China. While the H200 is a years-old chip, it is still the most advanced artificial intelligence processor Nvidia is allowed to sell in the country, under strict U.S. export controls. 

But Chinese sales had stalled as U.S. lawmakers pushed for stricter restrictions on how China could use the H200 chips. China was also seen pushing back against Nvidia, as part of a broader push by Beijing for complete self-reliance across the AI industry. 

Gold prices edged higher Thursday with the escalating Middle East war supported bullion’s safe-haven appeal.

At 06:05 ET (11:05 GMT), Spot gold traded 0.5% higher at $5,167.00 an ounce, after rising over $5,200/oz earlier in the day. U.S. Gold Futures gained 0.8% to $5,176.35/oz.

The yellow metal gained 1% in the previous session. The rebound followed a near 5% pullback on Tuesday when a stronger dollar weighed on prices.

Gold helped by elevated Middle East tensions

Geopolitical tensions remain elevated after the U.S. sank an Iranian warship in international waters, while Iran continued to fire missiles into several countries across the region and reportedly targeted critical energy infrastructure.

The conflict has deepened fears of a sustained regional war, prompting investors to reduce exposure to risk-sensitive assets and flock to gold, which is traditionally viewed as a hedge against geopolitical instability and market turbulence.

"Looking ahead, gold faces competing macro forces," said analysts at ING, in a note. "The inflationary impact of the Middle East conflict, via sharply higher energy prices, could reinforce expectations of higher interest rates for longer -- a headwind for non‑yielding assets such as gold."

"However, elevated geopolitical uncertainty continues to support a risk premium, helping to underpin prices despite the challenging rates backdrop," they added.

Dollar strength limits gold’s gains

Trader are also keeping an eye on the US Dollar Index, which bounced back Thursday after slipping 0.3% overnight. It posted two consecutive sessions of strong gains at the start of the week.

A stronger greenback makes gold more expensive for holders of other currencies.

“Uncertainty typically supports safe havens, implying upside for gold,” Morgan Stanley strategists led by Amy Gower wrote in a note, but added that recent price action has been “more mixed with USD strength.”

Several forces are currently influencing gold prices simultaneously. These include expectations around Federal Reserve interest-rate cuts, currency movements, geopolitical risk, and market liquidity conditions.

According to the strategists, the recent selling in gold may reflect investors raising cash during periods of market stress rather than a fundamental shift in sentiment.

“We think gold’s underperformance is likely to be temporary if the current situation continues, with recent selling most likely due to the need for liquidity,” the strategists said.

Among other precious metals, silver prices rose 1.6% to $84.53 per ounce, while platinum gained 1% to $2,176.200/oz. 

Benchmark Copper Futures on the London Metal Exchange dropped 1.2% to $12,904.00 a ton and U.S.Copper Futures also fell 1.3% to $5.8308 a pound.

The conflict in the Middle East escalated on Wednesday, with the U.S. sustaining its ongoing assault of Iran and Israel bombarding sites linked with Tehran’s missile and air-defense systems, although stock futures on Wall Street climbed following a media report on possible secret discussions over a ceasefire.

Tehran has targeted locations in Israel as well as U.S. bases and embassies across the Middle East in retaliation. Iran has also promised to select a new supreme leader to succeed Ayatollah Ali Khamenei, who was killed in an air barrage over the weekend.

Concerns have subsequently risen that the conflict could stretch on longer than President Donald Trump’s initial four- to five-week timeline. A senior U.S. military commander said that American forces were engaged in "24/7 strikes into Iran from seabed to space and cyberspace," adding that further assets would be utilized.

Admiral Brad Cooper, the overall commander of the U.S. campaign, said the continuous assault has degraded Iran’s air defenses and left the country without operational vessels on key waterways, Reuters reported, citing a video briefing.

Israeli Defense Minister Israel Katz also warned that any new leader appointed by Iran could be "an unequivocal target for elimination."

The prospect of a protracted crisis choking off a significant portion of global oil and gas supplies has driven up prices for both, threatening to reignite upward pressure on inflation.

U.S. futures erase losses

On Tuesday, the specter of renewed price gains -- and a potential delay to Federal Reserve interest rate cuts this year -- sparked a jump in U.S. Treasury yields that led to a whipsaw session in U.S. stock markets.

For investors, a central worry is that the violence in the Middle East may cause extended disruptions to tanker traffic through the Strait of Hormuz, a vital waterway through which a significant portion of the world’s oil and gas supplies flows.

Brent crude prices, which were trading at around $73 a barrel prior to the start of the assault on Iran, have risen sharply. The Brent futures contract was last trading hands at $83.48 a barrel, a rise of 1.6%, while U.S. West Texas Intermediate crude future had moved up 0.9% to $75.26 a barrel.

Oil prices jumped by as much as 8% on Tuesday, but later gave back much of it after President Trump suggested that the U.S. may begin to escort ships through the Strait of Hormuz.

Meanwhile, the cost of natural gas, key for everything from electricity to heating, has soared in Europe and Asia. Iranian attacks on a Qatari natural gas site have halted gas flows out of the major producer, crimping supply in several countries reliant on these shipments.

Jitters over rising energy costs have hit stocks in Asia especially hard. Nations in East Asia like South Korea and Japan heavily import oil and gas that goes through the Strait of Hormuz, exposing them to dwindling shipping activity through the narrow geographic passageway south of Iran. South Korea’s Kospi index, in particular, fell so much on Wednesday that trading had to be temporarily suspended.

But futures on Wall Street turned positive, while oil prices moderated, following a New York Times report that Iranian operatives have made an offer to discuss terms for ending the conflict. Citing officials briefed on the outreach, the paper flagged that U.S. officials are skeptical that either the Trump administration or Iran are ready to take such an offramp.

Israeli officials, keen on inflicting maximum damage on Iran’s military apparatus and possibly overthrowing Tehran’s government, have told the U.S. to ignore the approach, the New York Times reported.

In public, Iran’s leaders have not made any moves to try to negotiate with Washington.

Israel struck targets in Iran and Lebanon, while Tehran launched its own barrage of counter-attacks, as the conflict in the Middle East further widened on Tuesday.

U.S. President Donald Trump has suggested that Washington, which has been carrying out a joint campaign with Israel against Iran, could pursue prolonged fighting in the region. Trump, speaking at his first public event since the U.S. and Israel hit Iran with initial strikes over the weekend, said the U.S. had a "virtually unlimited supply" of some types of weapons.

Trump previously said U.S. involvement in the conflict would last for the next four to five weeks.

Meanwhile, Israeli Prime Minister Benjamin Netanyahu claimed the latest wave of attacks -- which come after a brief, U.S.-backed 12-day war with Iran in June last year -- was "not going to take years."

"It’s not an endless war," Netanyahu said on Fox News on Monday.

Israel’s military has said it has attacked targets in the Iranian capital of Tehran, as well as command centers and weapons storage facilities of Iran-supported Hezbollah in Beirut.

Iran has continued its own retaliatory responses on sites throughout the Middle East. The U.S. embassy in Saudi Arabia sustained minor damage from Iranian drone strikes, according to the New York Times, citing the Saudi Defense Ministry. Amazon’s cloud-computing business also said two of its facilities in the UAE and Bahrain were hit by drone strikes and were "significantly impaired."

Dubai’s international airport, a major hub for global travel, has also been attacked. Hotel and airline stocks were broadly lower on Tuesday, extending underperformance in the prior session.

Oil flow disruption fears

Oil prices surged, adding to the previous session’s sharp gains, as threats to flows through the Strait of Hormuz continued to underpin supply disruption worries.

Brent futures soared 4.3% to $81.10 a barrel and U.S. West Texas Intermediate crude futures rose 4% to $74.05 a barrel.

Both contracts closed more than 7% higher after climbing as much as 13% to one-year highs on Monday.

Tensions have intensified after Iranian officials vowed to attack any ship attempting to pass through the Strait of Hormuz, raising the prospect of disruption to crude flows from the major Gulf producers.

"The sharp move reflects a rapid repricing of supply risk as markets grapple with the prospect of prolonged conflict and constrained energy exports,” Laurence Booth, Global Head of Markets at CMC Markets, told Investing.com.

Still, analysts at Vital Knowledge have argued that the OPEC+ producer group’s recent willingness to increase output could provide a modest buffer to possible major stoppages of oil flows.

Fears over the choking off of key oil supplies weighed heavily on markets in Asia, the destination for much of the oil flows. Stocks in South Korea, Tokyo and Taiwan all dropped. European markets declined as well.

In the U.S., stock futures pointed to a negative start to trading, despite a rebound on Monday that widely pared back early heavy losses in equities.

Spot gold prices sank as bullion’s safe-haven appeal during times of geopolitical stress was dented by a strengthening in the U.S. dollar.