Hormuz Standoff Sinks Gold as Rate Hike Bets Soar

The Strait of Hormuz standoff has sent shockwaves through global markets, pushing oil prices higher and fueling expectations for further Federal Reserve rate hikes. As a result, gold prices have plummeted nearly $100 in Asian trading on Monday, breaching the psychologically important $4,200-per-ounce level.

Iran's refusal to ease conditions for reopening the strait has exacerbated tensions with the US, which is expected to resume negotiations this week. Brent crude prices have surged 70% year-to-date in 2026, further intensifying inflationary pressures.

Cleveland Fed President Beth Hammack warned that the rise in long-term US Treasury yields has been driven by multiple factors, including stronger economic growth prospects and market expectations for further rate hikes.

The bond market is reflecting these tightening expectations, with the spread between 10-year and 2-year Treasury yields narrowing to just 17 basis points, a level not seen since early 2025. This flattening of the yield curve increases the likelihood of long-term yields falling below short-term yields, resulting in a curve inversion.