Oil Risk From Hormuz Keeps Crude Price Elevated, Weighing on Gold and Equities
Gold and other precious metals, alongside the stock market, slipped in early U.S. trading as a firmer oil price risks offset fading expectations for a September Fed rate hike.
Precious metals and equity markets pulled back Tuesday morning as rising oil prices and climbing long-term bond yields overshadowed growing bets that the Fed will hold off on cutting rates in September.
Gold changed hands around $4,333 per ounce, a decline of 2% on the day. Silver saw a steeper drop, falling back to $63.17 per ounce.
Investors are caught between two competing narratives right now. On one hand, a string of disappointing economic reports, covering retail spending, consumer and producer prices, and sentiment surveys, has pushed the possibility of a September rate hike somewhat lower to somewhere between 30% and 35%.
On the other hand, energy-driven inflation fears are pushing bond yields upward as markets price in both oil-related price pressure and growing fiscal concerns. The benchmark 10-year Treasury sits close to 4.74%, and the 30-year has climbed into the 5.2%-5.3% range, a level not seen since 2007.
A fixed-income strategist at Citadel Securities noted that in a supply-constrained environment, there's barely any cushion left to absorb inflationary shocks.
At the center of the oil-market anxiety is the Strait of Hormuz. A ship passing through the strait was hit by a projectile near Oman, sustaining engine damage and resulting in a crew member's death. This came as a 60-day negotiating period between the U.S. and Iran expired without any breakthrough, and Tehran continues to maintain that it won't reopen the waterway until sanctions and other demands are addressed.
This creates a push-pull dynamic for gold: escalating shipping and security concerns typically drive investors toward safe havens, but that effect is being offset by pricier crude and climbing yields, which reduce the appeal of non-yielding assets.
Sentiment was already soft heading into the U.S. session. Tech stocks are bearing the brunt of the selloff following steep premarket losses among AI-related companies. Other stocks also closed the trading session lower.
From a chart perspective, gold would need to reclaim $4,450 to open the door toward $4,518 and eventually $4,600. If the momentum doesn't come back shortly, prices may trade lower in the foreseeable future.
Related assets: Gold, Silver, Palladium, Platinum, Crude Oil, Brent Crude