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Gold prices declined at the start of the week, extending recent losses, amid the ongoing crisis in the Strait of Hormuz and rising energy prices, which have fueled inflationary pressures and kept expectations of a US interest rate hike high. The gold market is increasingly sensitive to developments in US monetary policy, as the precious metal faces pressure from rising yields and a stronger dollar, despite persistent geopolitical tensions.
Oil and the Hormuz crisis fuel inflation fears
Gold traded near $4,265 an ounce , after ending the previous week down more than 2%. Meanwhile, oil prices rose as the dispute over reopening the Strait of Hormuz continued, with Iran reiterating its demands after US President Donald Trump rejected an Iranian proposal to open the waterway for seven days. The standoff between the US and Iran is now in its eighth month, while Brent crude has risen by about 70% since the beginning of the year, fueling concerns about continued high energy costs and the resulting pressure on commodity and service prices.
The Federal Reserve is facing pressure to raise interest rates again.
Rising energy prices are complicating the Federal Reserve’s efforts to contain inflation, especially as price pressures persist despite tightening monetary policy. Fed officials voted unanimously in mid-month to raise the benchmark interest rate by a quarter of a percentage point, and several later indicated that further increases might be needed.
Market pricing shows that investors see a roughly 65% probability of an interest rate hike in October , which is putting pressure on gold, which does not generate a cyclical return, compared to assets that benefit from rising interest rates.
Bond yields and the dollar are increasing the pressure.
Cleveland Federal Reserve President Beth Hammack indicated that rising long-term Treasury yields are linked to improved economic growth prospects, concerns about government debt, and expectations of further interest rate hikes. In the currency market, the Bloomberg Dollar Index rose 0.1%, having gained nearly 2% since the beginning of September.
The rising dollar is putting additional pressure on gold, as it makes the metal, which is priced in US dollars, more expensive for holders of other currencies, while higher yields increase the cost of holding it compared to bonds.
Gold is moving within a limited range despite the tensions.
Gold traded within a range of $4,230 to $4,510 an ounce during September, as investors repeatedly reassessed their expectations regarding the path of US interest rates. The metal remains well below its record high of nearly $5,600 reached in January, despite ongoing geopolitical tensions. In other metals markets, silver fell 0.8% to $63.77 an ounce, after losing 3% the previous week, while platinum and palladium prices also declined.
Declining consumer confidence and yield curve concerns
On the economic front, US consumer confidence fell in September to its lowest level in four months. In the bond market, the spread between 10-year and 2-year Treasury yields narrowed to just 17 basis points last week, the tightest it has been since early 2025. This development is known as a flattening of the yield curve, which can become inverted if long-term bond yields fall below short-term yields. Investors are watching this pattern closely as a potential indicator of recession risk.
Gold caught between the risks of war and interest rate pressures
Gold faces a complex equation; geopolitical tensions and rising oil prices may boost demand for safe-haven assets, but persistent inflation, rising interest rate expectations, and a strong dollar are putting pressure on the metal. Therefore, gold’s direction will not be solely determined by these tensions, but also by the extent to which the energy crisis influences the Federal Reserve’s decisions and whether markets continue to price in further interest rate hikes in the coming months.
