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- Brent crude has been trading above $100 a barrel amid disruptions to shipping through the Strait of Hormuz, while gold fell to its lowest level in more than seven weeks in late September.
- The divergence highlights the role of interest rates. Higher oil prices raise concerns about persistent inflation and further Fed tightening, increasing the opportunity cost of holding gold, which pays no interest.
- Central banks have been buying gold, offering some support, but even that hasn’t stopped prices from sliding, reminding markets that geopolitical shocks don’t always send oil and gold moving in lockstep.
Traders usually bet that when Middle East tensions flare, both oil and gold will climb. This year, that playbook hasn’t worked.
Brent crude is hovering around $108, up nearly 50% from about $72 before the conflict erupted in late February. Gold, meanwhile, has dropped about 25% from its January peak.
Both oil and gold thrive on uncertainty, but a supply shock can split their paths. The difference boils down to how pricier oil ripples through inflation, interest rates, and the dollar.
The Hormuz Disruption Didn’t Carry Over to Gold
Brent crude traded above $100 a barrel in September, amid renewed attacks that disrupted tanker traffic through the Strait of Hormuz. ⁽¹⁾
The Strait of Hormuz is a vital artery for global oil shipments. When trouble hits, it usually means higher prices are here to stay, not just a quick jump.
Gold moved the opposite way over the same stretch. Spot prices fell 3.1% on September 28 to $4,155.67 an ounce, their lowest level since early August. ⁽¹⁾
Why Pricier Oil Can Make the Fed More Hawkish, Not Gold More Attractive
Rising oil prices can seep into every corner of the economy, fueling inflation—especially if energy costs stay high. But that doesn’t always guarantee the Fed will hike rates.
The Fed looks at how sticky inflation is, along with jobs and the bigger economic picture. A short-lived oil spike sends a different message than months of expensive energy.
In late September, markets read it as the latter. Futures tied to the Fed’s October meeting briefly priced a roughly 70% chance of another rate increase, according to CME FedWatch, on top of a quarter-point hike already delivered earlier that month. ⁽¹⁾
Gold feels these shifts acutely because it doesn’t pay interest. When rates and yields climb, gold loses its shine compared to assets that do pay. A stronger dollar only adds to the pressure, since gold trades in dollars worldwide.
UBS commodity analyst Giovanni Staunovo named this combination directly, pointing to “higher oil prices and the increased probability of further US rate hikes” as drivers of gold’s weakness at the time. ⁽¹⁾
An Echo of 2022
We saw a similar story when Russia invaded Ukraine in 2022. Gold got a boost at first as investors rushed for safety, but the Fed’s rate hikes soon chipped away at those early gains.
It’s not a perfect parallel, and every crisis has its own mix of oil shocks, inflation, yields, and gold flows. But the same tug-of-war was on display in September. Energy shocks can make gold more attractive in uncertain times, but higher rate expectations can pull it back down.
What’s Cushioning Gold, and What Changed Since?
Central banks have been steady buyers of gold this year, giving the metal a floor. Even so, that support hasn’t been enough to stop the recent slide.
The inflation case behind September’s selloff is also not fully confirmed. US core PCE inflation, the Fed’s preferred inflation gauge, held at 3.0% year over year in August, below the 3.3% consensus forecast. ⁽²⁾
That’s why the market’s rate-hike bets looked more like a gamble on what might happen, not a reaction to hard data.
By early October, those rate-hike expectations had started to fade. A disappointing September jobs report slashed the odds of an October hike to under 20%, though investors still see at least one more increase coming by December.
Gold briefly found its footing in early October as Treasury yields eased and expectations for an immediate Fed hike faded. But that recovery has struggled to hold, with gold back near $4,140 as renewed Middle East tensions lifted oil and kept inflation concerns alive.
Conclusion
For now, worries about inflation and a tougher Fed stance are outweighing the usual safe-haven boost gold gets from geopolitical turmoil. But that doesn’t mean oil and gold always move in opposite directions when conflict rattles energy markets.
The push and pull between safe-haven demand, inflation fears, yields, the dollar, and central bank buying shifts every time. Whether gold stays under pressure will come down to new data and how the Fed reacts—not just what happens with oil.
