Gold prices experienced a significant decline on Monday, dropping below $4,000 per ounce, as renewed geopolitical tensions between the US and Iran intensified fears of a Federal Reserve interest rate hike. Spot gold was down more than 1% to $4,064.02 per ounce, extending losses for the second straight session. Gold futures for the US similarly fell by 1% to $4,071.80. The conflict in the Middle East has led to a surge in energy prices, with US crude Oil benchmark WTI rising nearly 6% to $75.70, fueling concerns about inflation.
The prospect of higher inflation increases the likelihood of central banks, particularly the Federal Reserve, raising interest rates. Federal Reserve Governor Christopher Waller indicated that a high core inflation reading could necessitate a near-term rate hike. Traders are now pricing in a 69% chance of a September rate hike, according to the CME Group's FedWatch Tool. Gold, being a non-yielding asset, becomes less attractive when interest rates rise, as investors seek assets that offer returns.
Market analysts are largely bearish on gold in the short term. Fawad Razaqzada, a market analyst at Forex.com, stated that rallying oil prices due to the Middle East conflict and potential Federal Reserve policy tightening are bad news for gold. He warned that if oil prices continue to climb, gold could break down to $3,800 initially, and potentially to $3,500 over time. Hebe Chen, an analyst at Vantage Markets, noted that renewed geopolitical tension has sent a shockwave through an already fragile gold market, adding that elevated oil prices, firmer yields, and a stronger dollar could keep gold under pressure.
Adding to market uncertainties, the US is set to release key economic data this week, including the Consumer Price Index, Producer Price Index, retail sales reports, and weekly jobless claims. Federal Reserve Chair Kevin Warsh is also scheduled to deliver his first monetary policy testimony before Congress on Tuesday. Investors will be closely watching these events for further clues on the outlook for interest rates. Since the US-Iran conflict began in late February, gold has fallen by over 20%, erasing all its gains for the year and briefly pushing the metal below $4,000 for the first time since November 2025. Other precious metals also saw declines, with spot silver slipping 2.3% to $58.47 per ounce, platinum dipping 0.2% to $1,624.82, and palladium down 0.5% to $1,270.69.
