Oil spikes on Iran strikes, pushing gold off peak and Treasury yields higher
Surging oil prices driven by US strikes on Iran are reshaping market expectations for Federal Reserve rate hikes, pulling gold away from its recent peak and pushing short-term Treasury yields to a 17-month high.
Spot gold held steady at $4,133.39 per ounce early on Thursday, retreating from the previous session's peak of $4,165.87. That mark was the highest for the metal since July 7. U.S. gold futures for August delivery fell 0.4% to $4,136.80 as the asset lost some of its momentum.
The shift in precious metals came as crude oil prices jumped more than 1.5% to reach a six-week high. The catalyst was a sharp escalation in Middle Eastern geopolitical risks, with the United States launching a new round of strikes on Iran. Simultaneously, Yemen's Houthi forces targeted oil tankers navigating the Red Sea, amplifying concrete fears of energy supply disruptions.
For fixed-income and equity investors, the immediate consequence of this oil spike was a rapid repricing of inflation expectations. Interest rate-sensitive two-year U.S. Treasury yields climbed to a 17-month high. The market logic is straightforward: sustained energy disruptions threaten to reignite inflationary pressures, increasing the probability that the Federal Reserve will need to implement further interest rate hikes rather than cutting them.
This shifting rate outlook looms large ahead of the central bank's scheduled meeting next week. While policymakers are widely expected to keep interest rates unchanged in the near term, futures markets have adjusted their positioning. Traders are now broadly pricing in at least one rate hike before the end of the year. Higher baseline rates increase the opportunity cost of holding non-yielding assets like gold, which explains the metal's pullback from its recent high despite the underlying geopolitical danger.
The same turbulence dictated movements in major foreign exchange pairs. The U.S. dollar largely stabilized on Thursday as renewed U.S.-Iran tensions drove fresh demand for the safe-haven currency. Conversely, the Japanese yen languished near a 40-year low, continuing its prolonged weakness against a resurgent greenback.
The broader precious metals complex showed only marginal gains in the wake of gold's pullback. Spot silver edged up 0.1% to $59.78 per ounce. Platinum inched 0.1% higher to $1,646.57, and palladium advanced 0.4% to $1,296.50.
