Gold Slips as Renewed Mideast Tensions Keep Fed Hike Bets Alive
Gold prices edged lower on Tuesday as renewed geopolitical risks in the Middle East compounded concerns about Federal Reserve monetary policy, keeping the metal under pressure after last week's sharp decline.
Spot gold was down 0.3% at $4,437.10 per ounce by 0235 GMT, after hitting its lowest level since August 19 in the previous session, as reported by CNBC. The metal had scaled a more than three-month high last week before tumbling more than 3% on Friday following Federal Reserve Chair Kevin Warsh's speech at Jackson Hole.
Warsh said the Fed will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2%, according to CNBC. His remarks were described as hawkish by market analysts, reinforcing expectations of further rate hikes.
Fed Policy and Market Expectations
Traders currently see a 66% chance of a S. rate hike in September and an 89% probability in December, according to the CME FedWatch Tool, as reported by CNBC. Livemint reported that traders pricing in a more than 60% chance of a hike at the central bank's next meeting in September.
IG market analyst Tony Sycamore told CNBC that gold has been pressured by "Fed Chair Warsh's hawkish Jackson Hole speech, plus fresh tensions in the Strait of Hormuz which has brought with it higher oil prices and raised inflationary expectations." He added, "One hike in isolation should not be a game changer for gold. Two or three might be."
While gold is considered a hedge against inflation, higher rates typically weigh on the metal by boosting the appeal of yield-bearing assets, as explained by CNBC.
Middle East Tensions and Oil Prices
S. President Donald Trump told reporters in the Oval Office that he has a lot of respect for Warsh and that "he'll do what he has to do" on interest rates, as reported by CNBC. According to Livemint, Trump also told Fox News on Monday morning that the S. would respond to Iran's attacks on S. forces, without giving details.
Trump threatened further strikes against Iran on Monday after the first exchange of direct attacks in a month, raising tensions in a conflict that had recently shifted into an economic standoff, as reported by CNBC. Livemint provided further detail, reporting that S. forces hit an island in the Strait of Hormuz and Iran responded by launching attacks on the United Arab Emirates and Jordan.
Oil prices rose for a second straight session, as reported by CNBC. Livemint noted that escalating tensions sent S. crude above $85 a barrel and Treasury yields higher, with elevated energy costs potentially necessitating rate hikes to contain price pressures.
Gold's Broader Rally and Market Dynamics
Despite the recent pullback, bullion is still up around 10% in August, heading for the biggest monthly gain since January, with prices surging after the S. Treasury's surprise announcement mid-month to ramp up bond buybacks, as reported by Livemint. The intervention to rein in borrowing costs revived the so-called debasement trade, driven by concerns over rising sovereign debt and currency devaluation, a theme that helped fuel gold's 65% rally in 2025.
Nicky Shiels, head of research and metals strategy at MKS PAMP SA, said in a note that the dovish Treasury and hawkish Federal Reserve are in a "tug of war," as reported by Livemint. She added that the debasement trade is likely to continue into September as the Treasury starts bond buybacks and ahead of the Fed meeting, which will support gold.
At 1:12 m. in New York, spot gold was 0.5% lower at $4,434.78 an ounce, while silver was down 0.1% at $66.30 an ounce, as reported by Livemint. Platinum and palladium both fell.
Market Data and Economic Indicators
Key S. data this week include job openings, the ADP employment report, and nonfarm payrolls data that will be scrutinized for clues on labor market health and the interest rate outlook, as reported by CNBC. S. gold futures edged up 0.1% to $4,485.30.
As traders await these data points, the interplay between geopolitical developments and Fed policy expectations is likely to remain a central driver for gold prices in the coming sessions.