Gold Prices Face Pressure Amid Escalating Tensions and Inflation Risks

Gold prices have been under pressure since Friday's strong US NFP data, which revived Fed rate hike bets and increased real yields. As a result, gold has become less attractive due to its zero interest rate compared to safe government bonds offering a positive, inflation-adjusted return.

The escalating US-Iran tensions and oil price increases are also contributing to inflation risks, leading the Fed to adopt a hawkish bias and signal rate hikes if core inflation starts to move in the wrong direction. The upcoming US CPI report on Friday will be a key event, with traders likely to hedge into the release.

Unless there's a surprising breakthrough in US-Iran relations, gold prices may remain rangebound or slightly negative. A soft or in-line CPI reading could give gold a boost, as Fed member Waller mentioned he won't consider a rate hike unless inflation data is hot. Conversely, an upside surprise in core monthly inflation data will likely trigger another selloff in gold on stronger rate hike bets.