Gold Declines as Hormuz Impasse Keeps Rate-Hike Bets Elevated

Gold prices slipped below $4,300 per ounce on Tuesday, pulled down by concerns over rising oil prices and the likelihood of additional Federal Reserve interest rate hikes. At its lowest, the precious metal was trading at $4,236.33 an ounce, a decline of 1.1% from earlier in the day, while the price of gold futures fell 1.2% to $4,270.50.

Meanwhile, gold prices in the silver market dropped 1.7% to $63.24 per ounce, and the price of platinum tumbled 1.3% to $1,758.04 per ounce. The U.S. Dollar Index, which measures the value of the dollar against a basket of foreign currencies, fell 0.31% to 100.97.

Tensions between Iran and the United States continue to cast a shadow over precious metals markets. Iran announced it would not compromise on its conditions for reopening the Strait of Hormuz, a vital shipping route, despite repeated calls from the U.S. President Donald Trump. Trump had previously dismissed Iran’s proposal to reopen the waterway, but said he expected talks with Tehran to restart this week.

The U.S.-Iran conflict has now entered its eighth month, with Brent crude prices surging about 70% this year. This surge in energy prices is adding pressure to inflation concerns and has become a crucial factor for markets evaluating the Fed’s next moves.

Federal Reserve officials are increasingly concerned about the impact of higher energy costs on inflation. Cleveland Federal Reserve President Beth Hammack noted that long-term Treasury yields are being pushed up by stronger economic growth expectations, worries over government debt, and the expectation of more interest rate increases.

Fed policymakers voted unanimously in mid-September to raise the benchmark rate by 25 basis points, and several have since indicated that additional hikes could be necessary. Markets are currently giving a 65% chance that the Fed will raise rates again in October.

Gold has been under pressure from the bond market in recent weeks. The yield spread between 10-year and two-year Treasuries narrowed to as little as 17 basis points last week, the smallest gap since early 2025, indicating a reduced risk premium for holding bonds. Gold has been trading in a relatively narrow range of $4,230 to $4,510 per ounce this month as investors grapple with the outlook for Federal Reserve policy. Prices remain well below the record high of almost $5,600 reached in January.

Analysts at ANZ believe the macroeconomic backdrop remains challenging for gold. Higher yields and a strong dollar are both weighing on prices. However, the bank points out that gold exchange-traded fund (ETF) demand has remained strong, with holdings of about 50 tonnes so far this month. U.S. consumer sentiment weakened in September, falling to a four-month low as concerns about prices and the economy continue to mount.

U.S. Treasury Secretary Scott Bessent urged the Federal Reserve to remain open-minded about interest rates. He argued that productivity gains from artificial intelligence and deregulation could help curb inflation. Markets will next focus on Wednesday’s August Personal Consumption Expenditures (PCE) inflation data and Friday’s September jobs report, providing fresh clues about the Fed’s path for further rate hikes.