Gold Steady Amid Hormuz Tensions and Fed Rate Expectations

Gold prices traded in a narrow range as market participants assessed the impact of a reported Iranian attack in the Strait of Hormuz on the Federal Reserve's (Fed) path for interest rates. Global markets focused on the potential repercussions of geopolitical tensions in the region on energy prices and, consequently, inflation, while the safe-haven asset, gold, maintained a calm trajectory.

According to reports in Iranian media, Tehran announced it had struck “hostile targets” in the Strait of Hormuz and planned to bar US and Israeli vessels from transiting the strategic waterway. This development followed a period where gold had briefly rallied due to earlier optimism about an agreement with Oman to reopen shipping lanes. On Thursday, gold prices briefly climbed above $4,300 on hopes for the strait's reopening, but this momentum faded as tensions escalated again. The Houthi movement in Yemen also claimed a large-scale attack against Saudi-backed government forces, raising concerns about a broader regional conflict.

This escalation in geopolitical tensions has led to an increase in crude oil prices, reigniting inflationary pressures. Higher energy costs, by increasing business expenses and passing these costs on to consumers, have raised the prospect of the Fed needing to keep interest rates higher for longer or even to hike them further. Higher interest rates are typically considered a negative factor for gold, which does not offer a yield. Spot gold traded around $4,233.95 in Singapore markets, while other precious metals like silver and platinum also saw declines.

The developments are viewed as part of the broader US-Iran conflict that began in late February. Since the onset of this conflict, gold prices have fallen by nearly a fifth. US President Donald Trump, however, stated on Thursday that he believes the war will end “pretty soon” and that the US remains in control of the Strait of Hormuz.

Market analysts emphasize that the Fed's interest rate policy outlook continues to be a decisive factor for gold prices. According to CME FedWatch Tool data, market participants are currently pricing in approximately a 60% probability of a rate hike in September and about an 80% chance by December. Some analysts suggest that while rising geopolitical risks could support safe-haven demand, expectations of a hawkish Fed monetary policy might balance this effect. In the long term, central bank gold purchases are expected to continue supporting overall gold demand, despite short-term Fed-driven volatility.