Gold prices slipped on Monday as Brent crude climbed above $90 a barrel, intensifying inflation concerns and strengthening expectations that the US Federal Reserve could keep borrowing costs elevated or raise them later this year.Spot gold fell 0.3% to $4,004.63 an ounce, remaining close to the psychologically important $4,000 threshold. US gold futures for August delivery declined 0.2% to $4,008.70.
The retreat highlighted an unusual market response to worsening geopolitical tensions. Gold often benefits when conflict drives investors towards safer assets, but the sharp rise in energy prices has shifted attention towards inflation and monetary policy. Higher interest rates raise the opportunity cost of holding bullion, which does not pay interest.
Brent crude rose more than 3% and crossed $90 a barrel as fighting between the United States and Iran deepened fears of disruption to energy shipments through the Strait of Hormuz. The waterway carries roughly a fifth of globally traded petroleum, making any interruption a significant threat to fuel supplies and consumer prices.
The oil benchmark has gained more than 20% this month, adding pressure to transport, manufacturing and household energy costs. West Texas Intermediate also advanced above $84 a barrel as traders assessed attacks involving tankers and military positions across the Gulf region.
Gold briefly found support from demand for defensive assets, but those purchases were outweighed by rising Treasury yields and expectations of tighter monetary conditions. Traders are now pricing an 82% probability that the Federal Reserve will raise rates by December, compared with 73% at the end of last week.
The central bank is widely expected to leave its benchmark interest-rate range unchanged at 3.5% to 3.75% when policymakers meet on July 28 and 29. Prospects for action later in the year have increased, however, following warnings from several officials that another energy-driven inflation wave could require a policy response.
Cleveland Federal Reserve President Beth Hammack has indicated that higher rates may be needed if inflation remains above target. Dallas Federal Reserve President Lorie Logan has also supported maintaining a restrictive approach, while other policymakers have argued that cooling underlying price pressures provide room to wait.
Federal Reserve Chair Kevin Warsh has stressed that the central bank has little tolerance for persistently high inflation, without signalling the timing of its next move. Policymakers remain divided between those favouring a rate increase and those who believe weaker price readings justify holding rates steady.
US consumer price data for June offered some relief. Core inflation, excluding volatile food and energy costs, increased 2.6% from a year earlier, unchanged from May and below levels recorded during the first half of the year. Falling producer prices also suggested that some pipeline pressures were easing.
Oil’s renewed advance has complicated that picture. Sustained crude prices above $90 could lift petrol, freight and airline costs, eventually feeding into a wider range of goods and services. The impact would depend on how long the conflict lasts and whether shipping through Hormuz faces prolonged disruption.
Gold has fallen from levels above $4,170 reached earlier this month, when weak employment data reduced expectations of tighter monetary policy. Bullion then suffered its sharpest daily decline in weeks after the reinstatement of measures restricting Iran’s oil exports and maritime activity pushed crude higher.
Technical analysts regard $4,000 as an important near-term support level. A sustained break below it could expose gold to further selling, with $3,886 identified as another significant threshold. Buyers may return if military escalation weakens the dollar, damages risk appetite or creates concern about broader financial instability.
The dollar’s movement remains another key influence. A stronger US currency makes gold more expensive for holders of other currencies, while higher bond yields reduce the appeal of precious metals as stores of value.
Demand from central banks and long-term investors has prevented a steeper decline. Official-sector buying, concerns over sovereign debt and efforts to diversify foreign-exchange reserves have supported gold despite changes in short-term interest-rate expectations.
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