Gold prices moved lower Friday as investors sharply increased expectations for additional Federal Reserve tightening following hawkish comments from Fed Governor Christopher Waller, who warned that inflation risks tied to the Iran war may force policymakers to consider raising interest rates again.

The precious metal fell as much as 1.1% during trading before stabilizing modestly lower, with spot gold trading near $4,506 per ounce in New York. The decline came as U.S. Treasury yields climbed alongside the U.S. dollar, reducing the appeal of non-yielding assets such as gold.

The latest market reaction highlights how rapidly investor sentiment has shifted since the Middle East conflict began earlier this year. While gold initially surged as geopolitical risks intensified, markets are now increasingly focused on the inflationary consequences of prolonged energy disruptions and the likelihood that central banks may maintain tighter monetary conditions for longer.

Fed Signals Higher Rates May Still Be Ahead

Christopher Waller’s remarks marked one of the clearest indications yet that Federal Reserve officials remain deeply concerned about inflation pressures linked to surging oil and energy prices.

Waller stated Friday that the central bank’s next policy move is “just as likely” to be an interest rate increase as a cut if inflation fails to moderate in coming months. He emphasized that while the Fed remains patient for now, policymakers cannot rule out additional tightening if energy-driven inflation continues spreading through the broader economy.

Markets responded quickly. Traders fully priced in a quarter-point Federal Reserve rate hike by December for the first time since the Iran conflict began, pushing bond yields higher across the Treasury curve.

Higher interest rates typically create headwinds for gold because bullion does not generate income or yield. As borrowing costs rise and fixed-income returns become more attractive, investor demand for defensive assets like gold often weakens.

The Bloomberg Dollar Spot Index also gained as expectations for tighter U.S. monetary policy strengthened support for the dollar.

Consumer Sentiment Weakens as Inflation Expectations Rise

Additional economic data released Friday reinforced concerns that inflation pressures are beginning to weigh more heavily on U.S. households.

The University of Michigan’s final consumer sentiment index for May dropped sharply to 44.8 from 49.8 in April, marking one of the weakest readings on record.

Long-term inflation expectations also deteriorated notably. Consumers now expect prices to rise at an annualized pace of 3.9% over the next five to ten years, up from 3.5% previously and the highest reading in seven months.

The data reflects growing concern that elevated energy prices tied to disruptions in the Middle East may continue feeding into transportation, food, housing, and broader consumer costs across the economy.

Investors are increasingly worried that the Federal Reserve may face a difficult balancing act between controlling inflation and avoiding a deeper economic slowdown.

Gold Remains Trapped Between Inflation and Tightening Risks

Despite Friday’s decline, gold continues trading within a relatively narrow range after the sharp volatility seen during the early stages of the Iran conflict.

Since late February, bullion prices have struggled to establish a clear long-term direction as investors debate two competing narratives. On one side, elevated inflation, geopolitical uncertainty, and slowing global growth traditionally support safe-haven demand for gold. On the other, rising interest rates and a stronger dollar create persistent downward pressure.

Silver, platinum, and palladium also moved lower Friday alongside gold as broader precious metals markets reacted to rising bond yields and hawkish Federal Reserve expectations.

Looking ahead, investors will likely remain highly focused on upcoming inflation reports, energy market developments, Federal Reserve commentary, and any signs that the Iran conflict could either escalate further or move toward a more durable resolution.