Gold Prices Tumble as Geopolitical Tensions and Fed Hike Bets Surge

Gold futures plunged on Monday, falling 3.5% to trade at $4,170.17 as a combination of geopolitical tensions and shifting monetary policy expectations weighed heavily on the precious metal.

Geopolitical Catalyst and Oil Surge

The sell-off was triggered after President Trump rejected a weekend proposal from Iran aimed at reopening the strategically vital Strait of Hormuz, according to a report from Investing.com. The diplomatic setback erased earlier optimism for a de-escalation in the Middle East, causing crude oil prices to rise sharply.

The resulting surge in energy costs immediately revived market concerns about inflation. This put downward pressure on gold, which is sensitive to factors like rising bond yields and a strengthening U.S. dollar that often accompany inflation fears.

Fed Rate Hike Bets Intensify

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Heightened inflation worries have significantly altered expectations for the Federal Reserve's next move, further pressuring the non-yielding metal. According to the report, key market developments include:

• Money markets are now pricing in a roughly 66% probability of another Fed rate hike in October, a steep climb from just 9.4% a month ago.
• This follows the central bank's recent rate increase on September 16, which brought the federal funds target range to 3.75%–4.00%.
• U.S. Treasury yields have continued to climb, with 10-year and 30-year yields reaching their highest levels since 2007 and 2004, respectively. Higher bond yields increase the opportunity cost of holding gold, which offers no interest.

Broader Market Reaction

The risk-off sentiment was felt across markets. The broader precious metals complex, including silver, moved lower in tandem with gold, and the sell-off also dragged down major mining stocks. U.S. equities also retreated, with the S&P 500 falling 0.5% and the Nasdaq Composite dropping 0.7%, reflecting investor concerns over rising energy prices and the prospect of tighter monetary policy.