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 the US Federal Reserve maintaining higher interest rates to combat inflation. Spot gold slid as much as 1.6% to nearly $4,050 an ounce on Monday, extending its 1.4% loss from the previous week. Silver also saw a significant drop of 2.9% to $58.11 an ounce, with platinum and palladium also falling. The Bloomberg Dollar Spot Index, meanwhile, rose by 0.2%.
The escalation in the Middle East, particularly concerns about the status of the Strait of Hormuz, has sent oil prices soaring. This geopolitical instability is driving fears that the Fed will need to keep borrowing costs elevated for an extended period, a situation generally unfavorable for non-interest-bearing precious metals like gold. Hebe Chen, an analyst at Vantage Markets, noted that renewed geopolitical tension has created another shockwave in an already fragile gold market, suggesting that elevated oil prices, firmer yields, and a stronger dollar could keep gold under pressure unless the conflict de-escalates.
Several factors contributed to the downward pressure on gold. Minutes from the Fed’s June meeting showed a few policymakers considered raising rates, and concerns about inflation increased as labor market worries receded. Traders are now pricing in a 72% chance of a US Fed interest rate hike in September, up from approximately 63% last week, according to the CME FedWatch Tool. Additionally, the yield on the rate-sensitive two-year Treasury note climbed to its highest level since February 2025, and a stronger dollar made dollar-priced metals more expensive for international buyers.
The market is closely watching upcoming economic data and statements from Fed officials. Kevin Warsh, in his first appearance as US Fed Chairman, is set to testify before the House Financial Services Committee, following the release of June consumer price figures from the US Bureau of Labor Statistics. Vice Chair Michelle Bowman and Governor Christopher Waller are also expected to provide insights into how inflationary pressures are influencing the central bank's stance on interest rates. Gold has already declined by more than a fifth since the start of the Iran conflict in late February, with profit-taking temporarily pushing it below $4,000 for the first time since November 2025.
