Gold Crashes Below $4,200 as Oil Shock Backfires

Gold prices tumbled on Monday, sinking below $4,200 an ounce as rising oil costs and higher US bond yields strengthened expectations that the Federal Reserve will maintain its tightening policy.

Rising Brent crude prices above $106 a barrel after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz contributed to this move. The proposed deal would have ended the conflict, but Trump's rejection kept supply concerns elevated.

Higher oil prices normally support gold as an inflation hedge, but in this case, investors are treating higher energy costs as a reason for the Fed to remain hawkish. This has pushed gold lower, with spot prices down 2.1% at $4,198.10 an ounce and US gold futures falling 2.1% to $4,231.

The Fed's recent rate hike and expectations of another increase in October are also weighing on gold prices. Higher policy rates and bond yields increase the opportunity cost of holding gold, which pays no income. This has pushed real yields higher, with US 10-year yields around 5.2% late last week.