Gold Crashes Below $4,200 as Oil Strength Backfires on Hawkish Fed Expectations
Gold prices plummeted on Monday, breaking below $4,200 an ounce as rising oil costs and a firmer dollar strengthened expectations that the Federal Reserve may keep tightening policy. Spot gold fell 2.1% to $4,198.10 an ounce by 0357 GMT, while US gold futures dropped 2.1% to $4,231.
The move marked the steepest daily decline in gold since September 1 and extended pressure that pushed it lower last week. Gold typically benefits from an oil-driven inflation scare, but this time investors are treating higher energy costs as a reason for the Fed to remain hawkish.
Brent crude climbed back above $106 a barrel after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz and end the conflict. This kept supply concerns elevated and supported the inflation-hedge argument, but also increased the opportunity cost of holding gold.
The pressure is particularly visible in the bond market, with US 10-year yields around 5.2% late last week, close to a two-decade high. Longer-term ETF investors have so far remained committed, limiting the risk of a deeper correction, according to Commerzbank's commodity analyst Barbara Lambrecht.
The $4,200 area is an important near-term test for gold, with OCBC strategists warning that persistent weakness below the $4,300-$4,354 resistance zone could expose support around $4,200 and then $4,000. This week's US data, including job openings, ADP employment figures, the PCE inflation gauge, and Friday's nonfarm payrolls report, may decide whether that support holds.