US-Iran tensions add another layer of volatility to gold as oil prices complicate Fed outlook

Gold prices are facing renewed pressure as escalating US-Iran tensions push crude oil prices higher, adding to inflation concerns at a time when rising US Treasury yields and a strong US dollar are weighing on the precious metal. The combination has also revived expectations of a US Federal Reserve rate hike at its September 15-16 meeting, creating a challenging near-term backdrop for gold, according to the Gold Market Monthly Note.

Gold under pressure

Amid soaring crude oil prices due to escalating tensions in the US-Iran war, rising US Treasury yields and a strong US dollar, gold prices today are under pressure. In the international market, the COMEX gold price finished around 1.50% lower at $4,408.90 an ounce. In India, MCX gold had edged higher last week, ending at ₹1,52,784 per 10 grams, although it remained below its 20-day exponential moving average on the technical chart.

“Gold rate today is on edge as another surge in oil prices fed into inflation expectations and pushed markets to sharply raise the odds of a US Fed rate hike at next week’s US Fed meeting,” said Ponmudi R, CEO at Enrich Money. “The resulting pressure on precious metals drove gold and silver into their third consecutive weekly declines, although both staged a notable rebound on Friday despite a hotter-than-expected headline inflation reading.”

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US-Iran tensions

The renewed geopolitical tension is particularly important for gold because a sustained rise in oil prices could complicate the Fed’s inflation outlook. Higher energy costs can feed into headline inflation, potentially giving policymakers less room to ease monetary policy.

Higher interest rates and real yields generally increase the opportunity cost of holding non-yielding assets such as gold, while a stronger dollar can make bullion more expensive for international buyers. This creates a three-way headwind for gold through oil-driven inflation, higher Treasury yields and dollar strength.

Gold still has structural demand support

The Gold Market Monthly Note said the August rally was supported by factors extending beyond monetary policy. Gold rose from around $4,000 an ounce at the beginning of August to about $4,650, gaining roughly 14% during the month. Central banks and Asian households continued to provide underlying demand.

China’s central bank added 20 tonnes to its reserves in July, extending its gold-buying streak to 21 consecutive months, while Chinese gold ETFs also recorded strong inflows. India, meanwhile, saw gold imports nearly double in value to $4.16 billion in July as manufacturers and retailers replenished inventories ahead of the festive season. Domestic gold ETFs also continued to attract inflows in August.

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September FOMC meeting key trigger

The September 16 FOMC decision will therefore be crucial. The report noted that markets had raised the probability of a September hike to around 40%, while December hike expectations had also increased.

For gold, the bigger question may ultimately be whether higher oil prices translate into sustained inflation, higher real yields and a stronger dollar. If they do, bullion could face further volatility.

However, persistent fiscal concerns, central-bank purchases and resilient physical and investment demand could limit the downside and keep gold’s longer-term upward trajectory intact.

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