Will gold hit $5,500 as oil shock and Fed rate risks unsettle markets?

Gold fell in early trading on Monday as a stronger dollar and a jump in oil prices dulled demand for bullion, with investors weighing the prospect of a longer Middle East conflict and its implications for inflation and US monetary policy.

Spot gold declined 0.4% to $4,518.09 an ounce as of 0306 GMT, leaving it down 0.1% for the week. US gold futures for August delivery dropped 1% to $4,548.90 an ounce.

The move came as the dollar firmed, making bullion more expensive for buyers using other currencies.

Oil also climbed more than 2%, trading above $93 a barrel, adding to concerns that energy-driven inflation could remain sticky if geopolitical tensions persist.

Gold, which pays no interest, often comes under pressure when the dollar rises or when markets price in a firmer interest-rate outlook.

That dynamic was on display on Monday, even as the metal retained support from geopolitical uncertainty.

Traders await Trump decision

The market’s attention is centred on US President Donald Trump’s expected decision on a proposal to extend a ceasefire between Iran and its regional enemies for several months.

Negotiations between Iran and the US remain difficult, with the two sides still far apart on key terms.

A longer ceasefire could ease some of the pressure on energy markets and reduce demand for defensive assets.

Failure to reach an agreement, however, could keep oil prices elevated and reinforce inflation concerns.

Tim Waterer, market analyst at KCM Trade, said investors were waiting for clearer signals from Washington before taking stronger positions in gold.

The uncertainty has left bullion caught between competing forces. On one side, geopolitical risk continues to support demand for safe-haven assets.

On the other, a stronger dollar and higher oil prices are prompting traders to reassess the path for US interest rates.

Fed inflation risk in focus

Federal Reserve officials are also watching the conflict for signs that higher energy costs could feed into broader inflation.

Federal Reserve Governor Michelle Bowman has flagged the risk that a prolonged shock could make inflation more persistent, potentially affecting the central bank’s policy outlook.

That matters for gold because expectations of tighter policy tend to raise bond yields and reduce the appeal of non-yielding assets.

Any sign that the Fed may need to keep rates higher for longer, or even consider a more restrictive stance, could cap bullion’s gains.

Still, analysts say the longer-term case for gold has not disappeared.

They said that metal could still reach $5,500 by the end of 2026 if several supportive factors align, including lower oil prices, a weaker dollar, stronger central-bank buying and continued demand for gold as a hedge against inflation and geopolitical risk.

Other precious metals rise

Elsewhere in precious metals, silver gained 0.4% to $75.58 an ounce and was up 0.6% for the week. Platinum rose 1.1% to $1,937.30 an ounce, taking its year-to-date gain to 13.3%.

Palladium advanced 1.2% to $1,370.50 an ounce and was up 6.2% so far this year.

For now, gold remains sensitive to shifts in the dollar, oil prices and developments around the Middle East ceasefire talks.

Until investors have more clarity on the duration of the conflict and its inflationary impact, bullion is likely to trade less on safe-haven demand alone and more on how energy prices feed into the Fed’s rate debate.