Gold near $4,100 as Hormuz risks and Fed hike bets collide

Gold is caught between Middle East tensions that boost safe-haven demand and Fed rate hike expectations that raise the opportunity cost of holding the metal.

COMEX gold traded at $4,100.32 an ounce Wednesday, down 0.1 percent, as Hormuz Strait risks and Fed rate hike expectations pulled prices in opposite directions.

The International Monetary Fund cut its 2026 global growth forecast to 3 percent from 3.1 percent and raised its inflation projection to 4.7 percent, citing higher commodity prices and the threat of renewed Middle East conflict, the fund said in its July World Economic Outlook update.

Gold's inability to rally despite a weaker dollar reflects the crosscurrents. The US renewed airstrikes on Iran on Tuesday after three tankers were attacked in the Strait of Hormuz, a chokepoint for about one-fifth of global oil supply, according to US Central Command. Oil prices surged 2.7 percent, with WTI crude rising to $72.40 a barrel, adding to inflation concerns that support the case for higher US interest rates.

Traders see a 56 percent chance of a Federal Reserve rate increase in September, according to the CME FedWatch tool, down from more than 60 percent before the data. A resolution of Hormuz tensions could trigger a sharp gold sell-off, while any dovish Fed pivot could ignite a rally. The metal last traded above $4,200 on July 2.

Strait of Hormuz Disruptions Reshape Commodity Flows

The US revoked a license allowing Iran to sell oil after the tanker attacks, tightening economic pressure on Tehran. The IMF warned that "re-escalation of geopolitical tensions would hurt growth and compound inflationary pressures," with its projections assuming the Strait of Hormuz would begin reopening in mid-July and return to prewar conditions by March 2027.

Gold's dual role as a safe haven and an inflation hedge has created an unusual dynamic. While geopolitical turmoil typically drives demand for the metal, the resulting oil price spike feeds inflation expectations that push central banks toward tighter policy, increasing the opportunity cost of holding gold, which pays no interest. Gold at $4,100 is about 2.4 percent below its July 2 high above $4,200 and roughly 1 percent above its June low near $4,060.

Fed Rate Path Adds to Gold's Headwinds

Federal Reserve Governor Christopher Waller said Monday that forward guidance can be a "valuable tool" that speeds the impact of monetary policy under the right circumstances, though it can be a problem when used inflexibly. Investors will scrutinize the minutes of the Fed's June meeting, the first under Chairman Kevin Warsh, for further clues on the rate path.

Gold futures for August delivery settled at $4,112.50 an ounce on Tuesday, down 1.1 percent, after falling to their lowest since July 2 earlier in the session. The metal has declined from a recent high above $4,200 as the competing forces of geopolitical risk and monetary tightening have kept buyers on the sidelines.

This article is for informational purposes only and does not constitute investment advice.