Strait attacks test bullion's rate sensitivity
Spot gold rose 0.2% to $4,246.29 an ounce in Singapore. Iran and the Houthi rebels escalated military activity in the Strait of Hormuz. The Strait is a key global oil shipping route. The critical waterway handles nearly 20% of worldwide oil transport. Iranian strikes targeted US and Israeli ships there. This heightened fears of broader regional conflict. Local Iranian media claimed the attacks were retaliation. They warned of further actions to block Western ships. Tehran reportedly negotiated with Oman to secure shipping lanes.
These developments increased geopolitical tensions, which have become a key factor influencing gold prices, despite the asset's traditional sensitivity to interest rate changes.
Fed's rate outlook clouds gold's rally
Gold had briefly climbed above $4,300 an ounce earlier in the week. Traders speculated the Strait might reopen. Renewed hostilities led to fresh expectations of tighter monetary policy. Financial markets now price in roughly a 60% chance of a Fed rate increase in September. Reports say Federal Reserve Chair Kevin Warsh would raise borrowing costs if inflation data continues to run hot. This rekindles pressure on gold. Gold typically weakens when interest rates rise.
Federal Reserve Bank of St. Louis president Alberto Musalem emphasized the central bank cannot tolerate rising inflation. They cannot wait for potential productivity gains to materialize. Gold has already lost nearly 20% in value since the US-Iran conflict began late in February. Energy prices surged during this time. Inflation pressures mounted, and the likelihood of extended high interest rates increased.
Precious metals see modest gains
Beyond gold, other precious metals saw small but positive movements. Silver edged up 0.1% to $61.59 an ounce, while platinum and palladium also gained minor ground. The Bloomberg Dollar Spot Index remained stable following a 0.2% rise on Thursday, with no significant shifts in demand for the US dollar in the immediate term.
President Donald Trump downplayed the escalation. He stated in a White House briefing that the conflict would likely conclude 'pretty soon.' He reiterated that the US remains in control of the Strait of Hormuz. Investors and central bankers remain focused on inflation and economic stability. Geopolitical developments do not draw their attention. The Fed's policy decisions continue to shape the outlook for gold and other commodities.