Gold price nears breaking point as Fed fears threaten brutal collapse

Gold edged lower on Monday as Brent crude’s break above $90 a barrel revived inflation concerns and strengthened expectations that the Federal Reserve may raise interest rates again this year.

Spot bullion slipped 0.1% to about $4,015 an ounce in early Asian trading, while August futures held near $4,020.

The restrained move highlighted an unusual market dynamic.

Intensifying US-Iran hostilities are creating demand for defensive assets, but the resulting oil shock is also lifting inflation expectations and reducing the appeal of non-yielding gold.

Oil shock changes gold’s haven equation

Brent jumped about 3% to $90.79 a barrel, while West Texas Intermediate climbed to almost $85.

The advance followed a ninth consecutive night of US attacks on Iran and further Iranian strikes across the Gulf.

Shipping through the Strait of Hormuz has also slowed sharply, with only four vessels recorded crossing on Sunday.

That combination has changed the way bullion is responding to geopolitical risk. Gold would usually benefit when investors seek safety during a military escalation.

This time, however, traders are concentrating on the potential inflationary impact of disrupted energy supplies.

OANDA strategist Kelvin Wong said the conflict was increasing the risk of a broader offensive and a stagflationary shock.

In such an environment, higher bond yields and tighter monetary policy could outweigh gold’s traditional role as a hedge against political uncertainty.

Fed debate takes a more hawkish turn

The oil surge comes only days after softer US consumer and producer inflation figures briefly eased concerns over additional monetary tightening.

Those reports covered June, when energy prices were falling, and may offer limited guidance if crude remains above $90.

Cleveland Fed President Beth Hammack has joined officials arguing that borrowing costs may need to rise if inflation remains persistently above the central bank’s 2% target.

She has previously warned that current policy may not be sufficiently restrictive to return price growth to target in a timely manner.

Interest-rate markets have reacted quickly. CME FedWatch indicated roughly four-in-five odds of an increase by December, up from about 73% at the end of last week.

A September move is also increasingly viewed as possible, although the Fed is still widely expected to leave rates unchanged at its July meeting.

Higher rates tend to weigh on gold because investors can earn more from Treasuries and other interest-bearing assets.

Gold’s $4,000 floor faces another test

Gold remains close to the psychologically important $4,000 level after briefly falling below it last week.

The area has attracted bargain hunters several times, but repeated tests suggest support is becoming less secure.

A sustained break below the recent low near $3,985 could expose $3,886, a level Wong identifies as important for the longer-term trend.

A fall through that zone would raise the risk of a deeper correction towards $3,500.

On the upside, bullion must first reclaim $4,050 before challenging resistance near $4,100.

Until oil stabilises or Fed rate expectations retreat, rebounds may struggle to develop lasting momentum.

Silver rose 1.9% to $56.95 an ounce, while platinum gained 0.5%. Palladium slipped 0.2% to about $1,245.