Gold Slumps to Monthly Low as Middle East Crisis Collides With Hawkish Fed Bets

Today's video recorded by: Konrad Urbanowicz

Gold begins this week out by falling $50 (1.14%) on Monday, bringing futures prices to $4,340, their lowest price so far this month. The drop was predicated on a sharp uptick in expectations for a rate hike at the conclusion of the FOMC meeting this Wednesday. The FedWatch tool hit a high earlier today of nearly 95% before backing off slightly, now at around a 92% chance for a quarter-point increase, which would take the fed funds rate to between 3.75% and 4.00%.

The spike in sentiment for a rate hike comes after turmoil in the Middle East brought oil prices to new highs. This weekend, strikes in the Middle East caused a major Saudi oil pipeline to shut down after drone strikes damaged some of its pumping stations. A ship was also struck inside the Strait of Hormuz, causing the crew to evacuate and leading to one death and several injuries. These attacks delayed a meeting set to take place today regarding the Strait of Hormuz.

The dollar posted a sizable gain, further pressuring gold lower, with the U.S. Dollar Index rising 0.36% on the day. That move was likely tied to the U.S. 10-year Treasury yield breaking above 5% today.

Wednesday’s decision would mark the Federal Reserve’s first rate increase since 2023, and the first delivered under Chair Kevin Warsh, who has led the central bank since his contentious Senate confirmation this past May. At the Jackson Hole symposium last month, Warsh warned that underlying inflation trends “have not meaningfully improved,” a comment markets read as clearing the runway for tighter policy. That shift builds on a finely balanced July meeting, when the Committee held its target range at 3.50%–3.75% on a split 9–3 vote, with three members dissenting in favor of an immediate increase. August’s inflation data did little to change the calculus, with consumer prices still running at a 3.4% annual pace, keeping the Fed under pressure to act even as President Trump continues to press publicly for the rate cuts he had hoped his pick for the chairmanship would ultimately deliver.

The unrest rattling energy markets is an escalation of a conflict now well into its seventh month. Iran’s Revolutionary Guard effectively closed the Strait of Hormuz to Western-linked shipping in the war’s early weeks, forcing Saudi Arabia to lean on its East-West pipeline — a roughly 750-mile conduit carrying several million barrels a day from the kingdom’s eastern oil fields to the Red Sea port of Yanbu — as its primary workaround. That workaround came under direct attack last week, when drone strikes launched from Iraqi territory, for which no group has claimed responsibility, forced Riyadh to shut the line down entirely; traders have since focused on how many days of Red Sea reserves stand between the kingdom and a genuine supply crunch. Yemen’s Houthi movement compounded the squeeze by seizing an island commanding the Bab el-Mandeb strait, threatening the Red Sea route as well. Against that backdrop, a summit in Oman, originally scheduled for today, was postponed over the weekend at Saudi Arabia’s request, with officials citing the need for broader regional consensus before talks resume.

Chart-wise, the slide has carried gold into a band of support between $4,280 and $4,300, an area reinforced by the 50-day moving average and last week’s swing low; a clean break below that shelf would open the door toward $4,230–$4,240. The metal’s relative strength index has already eased back from overbought territory, suggesting Monday’s move still has room to run before sellers are exhausted. On the upside, $4,400 to $4,440 — home to a cluster of short-term moving averages and the 78.6% Fibonacci retracement of the summer advance — now caps the bounces, and a decisive close above that zone would be needed to shift the near-term structure back in the bulls’ favor.

Silver bore the brunt of the selling, tumbling roughly 2% into the low $60s and pushing the gold-silver ratio back out toward 68 — a reminder that the metal’s dual identity as both a monetary and an industrial asset leaves it exposed to rate-driven selloffs and risk-off equity moves alike. That paper-market weakness sits awkwardly against silver’s physical fundamentals, which still point to a sixth consecutive annual supply deficit as solar, electric-vehicle, and data-center demand continues to climb. Gold, meanwhile, is now testing levels Goldman Sachs flagged in June as the downside risk of a hawkish surprise, when the bank trimmed its year-end target to $4,900 an ounce from $5,400 after concluding the Fed would deliver no rate cuts at all in 2026.

None of this unwinds the structural case that has carried gold to a roughly 16% gain over the past year even after Monday’s retreat: central banks now hold bullion equivalent to about a fifth of official reserves, up from roughly 15% at the end of 2023, and that reserve diversification shows no sign of reversing. The nearer-term path, though, runs squarely through Wednesday afternoon. A hike paired with a hawkish tone from Warsh and a dot plot pointing toward further tightening would likely press gold toward the lower end of its current range; a reluctant, one-and-done hike — or a surprise hold — could just as easily spark a relief rally back above $4,400. 

Wishing you as always,