Gold Falls Below $4,318 as War Fuels Inflation Expectations and Rate Hike Trade

The gold price has fallen to its lowest level in over three weeks as renewed US-Iran fighting sends shockwaves through markets. Despite the geopolitical tensions, which would normally drive investors towards safe-haven assets like gold, the metal is instead falling due to higher oil prices and rising Treasury yields.

With Brent crude reaching a six-week high at $95, inflation expectations are increasing, pushing up real and nominal yields. This in turn raises the opportunity cost of holding non-yielding assets like gold, making it more expensive for buyers outside the US.

The dominant market effect of the conflict is inflationary, with policymakers likely to keep policy restrictive if inflation stays above the Federal Reserve target. As a result, Fed funds futures now imply a 67% probability of a September rate hike, up from around 36-40% before Chair Kevin Warsh's recent comments.

The technical picture is also bearish, with gold breaking below its 200-day moving average and RSI near 22 signaling deeply oversold conditions. However, a genuine trend reversal is not yet seen, and the metal may face further declines if Brent crude continues to climb.