Gold Tumbles as US-Iran Strikes Heighten Fed Rate Hike Bets

Gold and silver prices tumbled following fresh military exchanges between the US and Iran over the weekend, which spurred a rise in energy prices and intensified concerns about the US Federal Reserve needing to implement further interest rate hikes to fight inflation. Spot gold dropped as much as 1.6% to near $4,050 an ounce and had already lost 1.4% the previous week. Silver saw an even steeper decline, falling as much as 3.1% on Monday, settling at $58.11 an ounce by 11:34 am in Singapore, while gold was $4,058.18 per ounce. Other precious metals like platinum and palladium also saw declines.

The escalation of tensions, particularly around the Strait of Hormuz, has left the gold market fragile. Hebe Chen, an analyst at Vantage Markets, noted that elevated oil prices, higher yields, and a stronger dollar could continue to pressure gold unless the situation in the Strait of Hormuz significantly de-escalates. The US denied Iran's claim of closing the vital waterway, while American forces conducted a fourth round of strikes in a week in response to an attack on a container ship.

The prospect of prolonged higher interest rates is a major headwind for precious metals, as they do not offer interest. The yield on the rate-sensitive two-year Treasury note reached its highest level since February 2025, and the dollar strengthened, making dollar-denominated metals more expensive for international buyers. The latest pressure on gold comes ahead of Federal Reserve Chair Kevin Warsh's first appearance before Congress on July 14, which will follow the release of June consumer price figures. Markets are now pricing in a 72% chance of a Fed rate hike in September, an increase from 63% last week.

Gold has fallen by more than a fifth since the Iran conflict began in late February, with profit-taking ending a three-year bull run and briefly pushing the metal below $4,000 for the first time since November 2025. Minutes from the Fed's June meeting revealed that some policymakers had considered raising rates, although they ultimately decided to keep them steady.