Spot bullion traded around $4,360 an ounce during Asian hours, recovering from Monday’s decline, when prices posted their biggest fall in a week. The move followed a sharp retreat in oil, which steadied after losing more than 9 per cent over four sessions as concerns about Middle East export disruptions eased and diplomatic efforts around the US-Iran conflict regained attention.
Lower energy prices have taken some pressure off inflation expectations after oil’s earlier surge complicated the Federal Reserve’s policy outlook. Gold, which offers no interest, generally benefits when expectations for higher borrowing costs recede because the opportunity cost of holding the metal falls.
The Federal Open Market Committee last week raised its benchmark federal funds target range by 25 basis points to 3.75 per cent to 4 per cent, saying inflation remained elevated. The decision was unanimous, and policymakers have continued to signal that incoming inflation data and supply shocks will shape the path of rates.
Traders are now watching public comments from Fed officials for clues about whether another increase could follow later this year. Chicago Fed President Austan Goolsbee said on Monday that persistent supply shocks could not simply be ignored, warning that repeated inflationary pressures may require a policy response even if tighter conditions cause economic hardship.
Boston Fed President Susan Collins has also pointed to persistent inflation, supply disruptions and solid labour-market conditions as reasons for supporting last week’s increase. Those comments underscored that the central bank remains sensitive to any renewed rise in commodity prices, even as the latest drop in crude has tempered immediate inflation fears.
Oil markets stabilised on Tuesday after a four-day sell-off. Brent crude rose modestly to trade around $101 a barrel, while US West Texas Intermediate also gained, with investors assessing prospects for renewed diplomacy between Washington and Tehran during the United Nations General Assembly in New York.
US President Donald Trump has indicated that he is open to meeting Iranian President Masoud Pezeshkian on the sidelines of the gathering, adding to hopes that diplomatic contact could reduce the risk of further disruption to regional energy flows. No breakthrough had been announced by early Tuesday.
Supply concerns have also eased as Saudi Arabia increased crude exports from its Gulf terminals after attacks disrupted its East-West pipeline and curtailed shipments through the Red Sea port of Yanbu. Shipping data showed stronger loadings from Ras Tanura and higher flows through the Strait of Hormuz, helping reassure traders that more barrels were reaching the market despite continuing regional risks.
The fall in oil prices has also pushed down some government bond yields and supported risk assets, while limiting part of the inflation premium that had built into markets during the conflict. US Treasury yields eased from last week’s highs, another factor that helped gold regain ground.
Still, bullion’s advance remained restrained by expectations that US interest rates could stay elevated. A stronger dollar has also posed a headwind because it makes gold more expensive for buyers using other currencies.
Market pricing continues to reflect a meaningful chance of another Fed increase before the end of the year, though expectations have shifted as crude prices have fallen. With little major US economic data due this week, investors are likely to focus heavily on central-bank speeches and changes in energy markets.
St Louis Fed President Alberto Musalem said additional rate increases could be required to return inflation to the 2 per cent objective. That kept investors cautious about treating the oil retreat as decisive evidence that the tightening cycle was finished.
Demand for bullion has shown resilience. Gold-backed exchange-traded funds have attracted 50 tonnes of inflows in September, extending gains for a third month as investors maintained exposure despite higher interest rates and volatile energy markets.
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