Gold and silver prices dropped sharply in early US trading Thursday as fresh attacks on commercial shipping in the Strait of Hormuz sent crude oil higher and renewed concerns about inflation.

The prospect of interest rates remaining elevated weighed on precious metals, despite lower Treasury yields amid continued geopolitical uncertainty.

Spot gold traded near $4,065 an ounce, down 1.89%, while silver fell 4.63% to $55.22 at the time of writing.

US labor data keeps rate outlook in focus

Fresh employment figures offered little indication that the labor market was weakening.

Initial jobless claims declined by 6,000 to a seasonally adjusted 194,000 in the week ended Oct. 17, below expectations of around 200,000 and down from the previous week’s revised 200,000.

The four-week average slipped to 197,750.

Continuing claims, however, increased by 25,000 to 1.728 million in the week ended Oct. 10.

The insured unemployment rate remained unchanged at 1.1%, suggesting layoffs remain relatively limited even as some unemployed workers take longer to secure new positions.

Markets largely expect the Federal Reserve to leave rates unchanged at its Oct. 27-28 meeting, while pricing in an approximately 86% probability of a quarter-point increase in December.

The 10-year Treasury yield moved toward 5% as demand for government bonds improved amid technology-stock weakness and geopolitical risks.

Gold nevertheless remained under pressure as traders assessed the implications of restrictive monetary policy.

Hormuz attacks fuel inflation concerns

The Fed’s communications blackout has left investors reliant on incoming economic data to gauge the policy outlook.

Thursday’s releases include the Conference Board’s September leading economic index and the Kansas City Fed manufacturing survey.

Friday’s preliminary October manufacturing and services purchasing managers’ indexes and the University of Michigan’s final consumer sentiment survey will provide further clues.

The Fed decision next week and the Oct. 29 personal consumption expenditures inflation report are also key events for rate expectations.

Meanwhile, tensions around the Strait of Hormuz intensified after reports of attacks on commercial shipping and renewed threats against US assets.

Iran claimed seven oil tankers were damaged or caught fire during attacks or mine incidents, although the full extent of the incidents has not been independently confirmed.

Tehran also renewed warnings against US bases, while diplomatic efforts remained stalled. Reports of further Houthi attacks on Saudi infrastructure added to concerns about a wider regional conflict.

Brent crude climbed above $112 a barrel, its highest level since May, while West Texas Intermediate approached $100. Higher energy costs could add to inflation pressures, potentially limiting gold’s appeal as a safe-haven asset.

Dollar and equity weakness add to pressure

Technology shares led declines ahead of the US open as investors reassessed AI investment costs and corporate valuations. European and Asian equities also weakened, while government bonds attracted demand.

WTI traded near $99.95 and Brent around $112.41, with the 10-year Treasury yield near 5%.

A comparatively firm US dollar and expectations of continued Fed tightening remained additional headwinds for precious metals.

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