Gold prices steadied at approximately $4,010 an ounce after a more than 2% slide the previous week. This occurred amidst heightened tensions between the US and Iran, including attacks on a Kuwaiti oil facility and ships in the Strait of Hormuz, which propelled benchmark Brent crude above $90 a barrel. The conflict has led to increased speculation regarding the Federal Reserve's interest rate path.
The escalation of hostilities in the Middle East has fueled concerns that inflation could remain high, potentially prompting the Federal Reserve to raise interest rates. While some market expectations for a rate hike at the July 29 meeting briefly rose to 40% before easing to around 10%, analysts like those from ANZ suggest the hurdle for another Fed rate hike remains high. They anticipate the Fed will likely overlook higher energy prices unless they lead to broader inflationary effects, expecting gold to find support in the $3,800-$4,000 range as rate hike expectations fade.
The precious metal has recently traded in a narrow range around the psychologically significant $4,000 level. This follows a substantial 14% drop in the second quarter—its weakest quarterly performance since 2013—underscoring how market expectations for tighter US monetary policy have largely overshadowed traditional safe-haven demand for gold. Higher interest rates typically boost Treasury yields and the US dollar, increasing the opportunity cost of holding non-yielding assets such as gold.
