Gold prices fell on Monday as a jump in oil prices stoked fresh inflation anxiety and reinforced bets that the Federal Reserve will keep raising interest rates. Spot gold slid 0.7% to $4,254.77 a troy ounce, while US gold futures lost 0.7% to settle at $4,289.70.
Oil and inflation fears
Oil prices rebounded more than 1% after Iran insisted that only diplomacy could resolve its standoff with the United States and Israel. The move came after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, a vital waterway for global oil shipments. Higher energy prices ripple through the economy, raising production and transport costs, and that feeds into broader inflation measures.
Gold is widely considered a hedge against inflation, but its relationship with the macroeconomic environment is not straightforward. When rising oil prices push inflation expectations higher, central banks often respond by tightening monetary policy, and that can hurt gold.
Fed rate path in focus
The Federal Reserve raised its target rate range by a quarter percentage point earlier in September, taking it to between 3.75% and 4.00%. According to the CME FedWatch Tool, traders now see a 66% chance of another rate increase at the October meeting.
Higher interest rates increase the opportunity cost of holding gold, which does not pay interest or dividends. As yields on bonds and savings accounts rise, investors tend to shift money into those assets instead. Cleveland Fed President Beth Hammack added to the hawkish tone on Friday, saying she is concerned that persistently high inflation could make the American public accept elevated prices as normal. “The central bank cannot let that happen,” she said.
Recent data suggests the US economy is already feeling the pinch. A survey released last week showed American consumer sentiment fell to a four-month low in September, driven by worries that rising inflation will erode household purchasing power.
Broader precious metals market
The sell-off was not limited to gold. Spot silver declined 1% to $63.67, platinum slipped 0.7% to $1,765.28, and palladium also lost 0.7%, ending at $1,257.70. The moves underline the broader headwind that rising real yields and a hawkish Fed present for precious metals as a whole.
Key takeaways
- Spot gold fell 0.7% to $4,254.77 as oil prices rose and Fed tightening bets increased.
- Oil’s rebound above 1% was driven by renewed Middle East tensions and a rejected proposal over the Strait of Hormuz.
- Markets now price a 66% probability of a Fed rate hike in October, lifting the opportunity cost of holding non-yielding gold.
- Consumer sentiment dropped to a four-month low, signalling growing economic unease among US households.
Common questions
Why did gold prices fall on Monday?
Gold dropped because a rise in oil prices stoked inflation fears, which reinforced expectations that the Federal Reserve will continue to raise interest rates. Higher rates make gold less attractive relative to yield-bearing assets.
How does oil affect gold prices?
Higher oil prices increase costs across the economy, pushing up inflation. While gold can act as an inflation hedge, it often struggles when central banks tighten monetary policy in response to rising prices, because higher yields raise the opportunity cost of holding gold.
Gold remains sensitive to every twist in energy markets and monetary policy. For the latest moves, keep an eye on the live gold price.