Gold slips as renewed Middle East tensions keep Fed hike bets alive

The debasement trade is likely to continue into September as the Treasury starts bond buybacks and ahead of the Fed meeting, which will support gold. Photo by Chris Ratcliffe/Bloomberg

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Bullion fell 0.5 per cent as escalating tensions in the Middle East sent United States crude above US$85 a barrel and Treasury yields higher. Elevated energy costs mean that the U.S. central bank may need to raise rates to contain price pressures. Higher rates are typically negative for non-yielding gold.

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The precious metal tumbled in the prior session as Fed Chairman Kevin Warsh’s hawkish speech where he vowed to fight inflation, with traders pricing in a more than 60 per cent chance of a hike at the central bank’s next meeting in September.

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Bullion is still up around 10 per cent in August, heading for the biggest monthly gain since January, with prices surging after the U.S. Treasury’s surprise announcement mid-month to ramp up bond buybacks. The intervention to rein-in borrowing costs revived the so-called debasement trade, driven by concerns over rising sovereign debt and currency devaluation, a theme that helped fuel gold’s 65 per cent rally in 2025.

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The dovish Treasury and hawkish Federal Reserve are in a “tug of war,” Nicky Shiels, head of research and metals strategy at MKS PAMP SA, said in a note. The debasement trade is likely to continue into September as the Treasury starts bond buybacks and ahead of the Fed meeting, which will support gold, she added.

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The U.S. and Iran exchanged strikes for the first time in about a month as American forces hit an island in the Strait of Hormuz and the Islamic Republic responded by launching attacks on the United Arab Emirates and Jordan. U.S. President Donald Trump told Fox News on Monday morning that the U.S. would respond to Iran’s attacks on U.S. forces, without giving details.

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Spot gold was 0.5 per cent lower at US$4,434.78 an ounce at 1:12 p.m. in New York. Silver was down 0.1 per cent at US$66.30 an ounce. Platinum and palladium both fell. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency, was down 0.2 per cent.

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—With assistance from Wendy Wells and William Clowes.

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