Gold Prices Stabilize Around $4,000 Amid Escalating U.S.-Iran Conflict and Rising Fed Rate Hike Expectations, Market Eyes Oil and Inflation

The United States and Iran have erupted into a new round of military conflict over the weekend, with markets closely watching whether the Federal Reserve might resume rate hikes to control inflation, causing gold prices to temporarily stabilize.

According to Bloomberg, spot gold prices are hovering around $4,000 per ounce, after falling over 2% last week. Meanwhile, the Middle East situation has deteriorated sharply, with a key oil facility in Kuwait attacked and vessels transiting the Strait of Hormuz targeted, pushing benchmark Brent crude oil prices above $90 per barrel.

Iran has declared that the ceasefire agreement with the U.S. is effectively nullified, raising the risk of further disruptions to shipping through the Strait of Hormuz.

This five-month-long conflict in Iran has once again driven up prices of commodities ranging from fuel and manufacturing raw materials to agricultural inputs. As tensions escalate, U.S. President Trump has remained silent on his Iran policy, leaving the resolution of the conflict highly uncertain.

Persistently high energy prices have triggered concerns among some market participants that the Fed may eventually tighten monetary policy, despite recent weak U.S. economic data suggesting low odds of near-term rate hikes.

Higher borrowing costs typically weigh on non-yielding assets like gold. Gold prices have been trading in a narrow range around $4,000 in recent weeks, after plunging 14% in the second quarter—the worst quarterly performance since 2013.

Justin Lin, analyst at Global X ETFs, noted that gold’s relatively muted reaction to surging oil prices reflects investor fatigue toward geopolitical issues, with market focus instead shifting to the Fed’s interest rate decisions.

He added that despite the clear escalation in the Middle East, U.S. Treasury yields rose only slightly over the weekend, which may partly explain why gold prices have remained stable.

Notably, Beth Hammack, President of the Federal Reserve Bank of Cleveland, posted on LinkedIn on Friday, joining a growing number of Fed officials expressing concern over high inflation. Traders in the interest rate swaps market have now priced in the possibility of at least one rate hike by year-end.

As of 10:01 a.m. Taiwan time, spot gold was quoted at $4,002.89 per ounce, down 0.27%; silver rose 1.11% to $56.70 per ounce; platinum and palladium both declined. The Bloomberg Dollar Spot Index, tracking the U.S. dollar’s performance, was largely flat.

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