Gold Futures Plunge 3.5% as Mideast Tensions Fuel Fed Rate Hike Bets

Gold futures plummeted on Monday, sliding 3.5% to $4,170.17 as escalating geopolitical tensions in the Middle East triggered a spike in oil prices. The move fanned inflation fears and intensified bets on further monetary tightening by the Federal Reserve, sending bond yields and the U.S. dollar higher.

Oil Surge Drives Market Reaction

The sell-off was ignited after President Trump rejected a proposal from Iran to reopen the strategic Strait of Hormuz within seven days, according to a report from Investing.com. The dismissal of a potential diplomatic resolution immediately sent crude oil prices sharply higher, undoing cautious optimism that had briefly appeared in the market.

The surge in energy costs renewed concerns about persistent inflation, directly impacting investor expectations for central bank policy and weighing on assets sensitive to interest rates.

Rising Yields and Hawkish Fed Bets

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The primary pressure on gold came from the financial market's reaction to the inflation threat. A stronger U.S. dollar and a continued surge in Treasury yields made non-yielding bullion a less attractive investment.

• Fed Expectations: Money markets are now pricing in an approximately 66% probability of another interest rate hike at the Fed's October meeting, a significant jump from 9.4% one month prior. The central bank last raised its benchmark rate on September 16 to a range of 3.75%–4.00%.
• Bond Yields: U.S. 10-year and 30-year Treasury yields pushed further into multi-decade highs, reaching levels not seen since 2007 and 2004, respectively. As Cleveland Fed President Beth Hammack noted, these factors are collectively driving long-term yields higher.

Broad Market Pullback

The combination of geopolitical risk and tightening monetary policy expectations prompted a wider risk-off mood. U.S. stock indices also retreated, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all trading in negative territory. The decline was mirrored across the precious metals sector, with silver and major mining stocks also falling sharply.