Gold fell for a fourth consecutive session on Wednesday, extending a decline of about 26% from its January record even as the Iran conflict continued to threaten global energy supplies.
Spot bullion slipped 0.2% to $4,118.18 an ounce by 0319 GMT, while December US gold futures declined to $4,136.20.
The metal has also lost roughly 22% since the war began, an unusual performance for an asset traditionally sought during geopolitical turmoil.
The problem is that the conflict is keeping oil expensive, threatening to prolong inflation and reinforce expectations of further Federal Reserve tightening.
Why the oil shock is working against gold
Brent crude touched $111.99 a barrel on Tuesday, its highest since May, amid attacks on shipping and threats to Saudi energy infrastructure. It later reversed course to settle at $108.79, but risks surrounding Middle East supply routes have not disappeared.
Higher fuel costs can filter through to transport, manufacturing and consumer prices. For gold, the concern is not simply inflation itself but the possibility that the Fed responds by keeping borrowing costs elevated.
Bas Kooijman, chief executive of DHF Capital, told The Wall Street Journal that expensive crude was sustaining inflation concerns and expectations of restrictive monetary policy, making non-yielding gold less attractive.
War risks may encourage bullion buying, but the prospect of higher returns on cash and government bonds can pull money in the opposite direction.
An October pause would not end the Fed threat
Futures markets assign roughly a 16% probability to a rate increase at the Fed’s October 27–28 meeting. The likelihood of at least one increase by December is closer to 87%, according to interest-rate futures pricing.
The Fed raised rates by a quarter-point in September to a range of 3.75%–4%. Consumer prices rose 3.7% in the year to September, sharpening concern that elevated energy costs will delay a return to the Fed’s 2% target.
Societe Generale analysts observed that gold had failed to benefit convincingly even when equities and credit markets weakened and US real yields eased.
They suggested earlier investment inflows may have inflated prices, leaving Treasuries the more compelling immediate refuge.
The Fed’s preferred PCE inflation data are due on October 29, after the October policy decision. A pause next week would therefore leave December’s outlook unresolved.
Gold’s $4,100 support meets resilient investment demand
Gold is approaching important near-term support around $4,100. A sustained break could bring $4,067 and then $4,000 into focus, while a recovery would first need to clear resistance around $4,180 and $4,200.
FXStreet analyst Dhwani Mehta said in her October 20 technical assessment that sellers remained favoured while bullion traded below its 21-day moving average, then around $4,180.
Longer-term investors are taking a different view.
World Gold Council analyst Johan Palmberg attributed September’s weakness partly to rising Treasury yields, a stronger dollar and reduced futures positions, despite persistent ETF buying.
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