Gold price slipped almost 1.50% to trade around $4,377 an ounce on Tuesday, hovering near two-week lows as rising oil prices and hawkish remarks from Federal Reserve Chair Kevin Warsh strengthened expectations for a US rate hike this month. Silver has fallen by about 2.6% to trade around $64 per ounce.
On MCX India, gold futures contract (05OCT2026) closed lower by nearly 1% at Rs 1,54,460 per ten grams, while Silver futures contracts (04DEC2026) closed lower by 1.3% at Rs 240121 per kg. In the spot market, gold trades at Rs 1,52,392, while silver trades at Rs 2,30,316.
Oil Price Fuelling Inflation
Oil prices increased for the second consecutive session, with Brent surpassing $92 a barrel after US forces targeted an island in the Strait of Hormuz. Iran retaliated with attacks on the UAE and Jordan, raising fears of ongoing disruptions to energy shipments in the region.
Higher energy costs have raised inflation concerns, supporting the likelihood of a near-term Federal Reserve rate increase, which is generally unfavorable for bullion.
Yields Moving Up
The US Treasury bond yields are sending the clearest signal that interest rates are likely to remain higher for some time. This is a negative signal for gold.
As gold is a non-yielding asset, its value is correlated with the opportunity cost of storing it. Investors typically favour dollar-backed assets over gold when yields increase. This is due to the fact that gold pays no interest at all in a high-rate environment, whereas yield-bearing assets become more appealing.
The yield on the US 10-year Treasury note increased to 4.79% for the fifth straight session, the highest since January 2025. This rise is driven by increasing oil prices, raising inflation concerns and reinforcing expectations for tighter monetary policy by the Fed.
Even the 30-year US Treasury bond yield increased to 5.28%, almost reaching levels seen before Treasury Secretary Bessent’s announcement last month that the Treasury Department will at least double the extent of its bond buybacks. The sell-off of bonds paused for a few days after Bessent’s announcement, before picking back up.
US Fed Rate Hike Expectations
As a result of elevated oil prices, the inflationary risks are not allowing the US Fed to consider rate cuts anytime soon. Markets now expect the US Fed to announce a rate hike at the September FOMC meeting.
Last week, Fed Chair Warsh reaffirmed his commitment to lowering inflation last Friday at the Jackson Hole Symposium. The likelihood that the Fed will raise interest rates by 25 basis points this month is currently priced in at about 65%, a significant increase from about 40% last week.
However, gold experts still believe that the long-term structural bull market for gold remains in place. Tapan Patel, Fund Manager – Commodities, Tata Asset Management states: Going into September, investors should closely watch the guidance on the FED interest rate policy from the Jackson Hole Symposium and the FOMC meeting, along with US inflation data, dollar strength, bond yields and developments in the US-Iran conflict.
While the current geo-economic factors remain supportive for gold, sustained investment demand and central bank buying may continue to support gold prices over the long term.
Silver’s long-term outlook remains dependent on a broad recovery in industrial demand, with increased usage in electronics, AI hardware and the solar sector providing a promising growth story.
Bottomline
The Strait of Hormuz continues to be the primary driver influencing inflation and interest rate expectations. Unless bond yields start to ease, the pressure on gold and silver is likely to continue. Compared to gold, volatility in silver prices is higher. Expect sharper price swings in silver, in either direction, more than in gold.
The rise in yields is driven by investor concerns about increasing US debt levels, leading to heightened interest in gold. Factors such as elevated inflation, geopolitical tensions in the Middle East, and significant capital spending related to the AI boom contribute to this trend, increasing the term premium for long-term bonds.
Finally, if the US Fed decides to hike rates at the September FOMC meeting, expect more volatility in gold and silver prices, as the dollar gets strengthened.
Disclaimer: This article is intended for informational purposes only and should not be construed as investment advice, financial guidance, or a recommendation to buy or sell any asset. Gold prices are subject to market volatility and may rise or fall without notice. Past performance is not indicative of future returns. Readers are advised to exercise due diligence and consult a qualified financial advisor before making any investment decisions.