Gold and silver prices tumbled after renewed strikes between the US and Iran over the weekend, leading to higher energy prices and increasing the likelihood of further US interest rate hikes to combat inflation. Spot gold slid as much as 1.6% to near $4,050 an ounce on Monday, having already lost 1.4% the previous week. Silver also fell by as much as 3.1%. The heightened geopolitical tensions in the Middle East fueled concerns that the Federal Reserve might need to maintain higher interest rates for an extended period, which typically acts as a headwind for non-interest-paying precious metals.
The escalation of conflict in the Strait of Hormuz, a critical shipping lane, caused oil prices to jump about 4%. Although the US denied Iran's claim of closing the waterway, the uncertainty contributed to market volatility. This situation has revived expectations for elevated interest rates, with traders now pricing in a 72% chance of a September rate hike by the Fed, up from approximately 63% last week, according to the CME FedWatch Tool. The yield on the rate-sensitive two-year Treasury note climbed to its highest level since February 2025, and the dollar strengthened, making gold more expensive for international buyers.
Analysts, such as Hebe Chen from Vantage Markets, noted that renewed geopolitical tensions have sent a "shockwave" through the gold market. She cautioned that if the situation around Hormuz does not settle, elevated oil prices, firmer yields, and a stronger dollar could keep gold under pressure. The current downturn signifies that gold is down by more than a fifth since the Iran war began in late February, ending a three-year bull run and briefly pushing the metal below $4,000 for the first time since November 2025.
Several key events are expected to influence market sentiment this week. Federal Reserve Chairman Kevin Warsh is scheduled to make his first appearance before the US Congress, and June consumer price figures from the US Bureau of Labor Statistics are also due. Remarks from Fed policymakers, including Vice Chair Michelle Bowman and Governor Christopher Waller, will also be closely watched for insights into the central bank's stance on interest rates amid inflationary pressures. As of 11:34 a.m. in Singapore, spot gold was down 1.5% at $4,058.18 an ounce, and silver slid 2.9% to $58.11 an ounce. Platinum and palladium also experienced declines.
