Spot gold falls below $4,200 as US-Iran tensions push oil higher, weigh on gold

September 28, Beijing Time — Crude oil prices climbed while gold prices fell sharply during morning trading. As of 11:22 a.m. local time, spot gold stood at $4,195.41 per ounce, down 2.09%, while Brent crude oil traded at $98.23 per barrel, up 0.81%.

Background: Iran-U.S. Tensions Resurface

According to a report by Xinhua News Agency on September 28, Iran's Mehr News Agency reported on September 27 that Iranian Foreign Minister Abbas Araghchi stated that Iran is prepared for a renewed conflict with the United States, though it has not abandoned diplomatic channels.

In a separate Xinhua report, Araghchi announced at a press conference at the United Nations headquarters in New York on September 25 that Iran had conveyed a plan to the U.S. via Qatar to reopen the Strait of Hormuz. He stated that if the U.S. takes the necessary actions, the strait could be reopened within seven days, restoring normal maritime traffic.

However, The Wall Street Journal reported on September 25 that former President Donald Trump rejected the Iranian proposal and told his aides he might resume bombing Iran after the U.S. midterm elections in November.

Market Implications

The ongoing uncertainty in U.S.-Iran relations and repeated tensions in the Strait of Hormuz are expected to keep international oil prices elevated, fueling inflation expectations and influencing the Federal Reserve's interest rate path, which in turn may limit gold's upside potential.

Fed Rate Expectations

According to a September 28 research note from Shenyin & Wanguo Futures, citing the CME FedWatch tool:

• October meeting: Probability of holding rates at 3.75%–4.00%: 35.2%; probability of a 25-basis-point hike: 64.8%
• December meeting: Probability of holding rates at 3.75%–4.00%: 7.6%; cumulative 25-bp hike: 41.6%; cumulative 50-bp hike: 50.9%

Analyst Views

Short-Term Outlook

Dongfang Securities noted that oil prices and U.S. Treasury yields have reached critical levels. This week, markets will focus on the U.S. September non-farm payrolls report, which could further sway expectations of Fed rate hikes.

Gold and Silver Strategy

Nanhua Futures suggested that if gold and silver prices decline further due to rising expectations of an October rate hike, this could present a buying opportunity. The medium-term trajectory for precious metals will depend on whether rate hike expectations deepen (the market currently prices in four total hikes in this cycle). The firm expects limited upside for further rate hikes and sees a high likelihood of downward revisions.

Additionally, Nanhua noted that the Fed may still consider restarting rate cuts by 2027, as a high base effect from March 2026 could lower year-on-year readings. The firm also highlighted the need to monitor whether a negative feedback loop forms between equities and bonds. If Fed Chair Kevin Warsh advances quantitative tightening, rate cuts could serve as a policy offset.

Gold Price Forecast

Nanhua Futures provided the following near-term levels for London gold:

• First resistance: $4,350/oz
• Second resistance: $4,400/oz
• Strong support: $4,200/oz

Given the upcoming National Day holiday in China, along with multiple key data releases, Fed speeches, and oil price volatility during the break, the firm advises investors to maintain light positions.

Full-Year Outlook

Nanhua Futures maintains its full-year forecast:

• London gold: $5,000/oz
• London silver: $90/oz

However, if December rate hike expectations remain firm, gold may trade in the $4,200–$4,700/oz range and silver between $62–$70/oz in the fourth quarter.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should act at their own risk.