Rising oil prices and a stronger dollar weigh on gold as markets price in prolonged high interest rates amid geopolitical risks.
Gold prices fell over 1% in early Asian trading as oil jumped nearly 4%, driven by fears of disruptions in the Strait of Hormuz. The move reflects renewed expectations for elevated interest rates, as higher energy costs stoke inflation concerns, pressuring non-yielding assets like bullion.
Oil’s rally extends a 3% gain from Monday, following weekend strikes by US and Iranian forces in the Gulf. Confusion persists over the strait’s operational status, amplifying supply risk. Meanwhile, the Federal Reserve’s recent report to Congress highlighted tariffs, war-related energy costs, and AI-driven demand as inflationary pressures, reinforcing the dollar’s strength.
The combination of geopolitical tensions and hawkish Fed signals has reduced expectations for near-term rate cuts, keeping gold under pressure despite heightened risk sentiment.