The Iran war isn't boosting gold — it's killing rate-cut hopes and making dollars more expensive to hold

Gold futures fell to $4,588.70 an ounce Thursday — a plunge of more than $1,000 from January’s peak — as the Iran conflict reshapes financial markets not by fueling demand for safe havens, but by killing any near-term hope for Federal Reserve rate cuts. Silver dropped even more sharply, to $70.39, dragged down by collapsing industrial demand expectations and the same rising cost of holding non-yielding assets.

The sell-off comes despite escalating geopolitical tensions from the US and Israel’s military actions against Iran. Iran’s blockade of the Strait of Hormuz, a route for 20% of the world’s energy supply, sent Brent crude as high as $119 a barrel before settling around $104. That surge pushed US gasoline prices to $3.88 a gallon and reignited inflation fears, undermining the very conditions that typically lift gold.

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inflation

Gasoline prices surge 21.2% in a month as Iran blocks Strait of Hormuz, pushing inflation to 3.3%

Inflation surged to 3.3% in March over the past 12 months, the highest level since May 2024, up sharply from 2.4% the previous month. The jump marks a direct hit to household budgets, as rising energy costs ripple through transportation, shipping, and consumer goods. The core Consumer Price Index, which excludes volatile food and energy, also ticked up to 2.6% from 2.5%, signaling broader price pressures are persisting. The main driver: gasoline prices soared 21.2% in a single month — the largest monthly increase in two years. That spike was not random. It followed Iran’s blockade of the Strait of Hormuz, a chokepoint for 20% of the world’s oil supply. The disruption has triggered the worst energy supply shock on record, constricting global oil flows. With energy-intensive sectors now passing on higher costs, inflation is accelerating just as the Federal Reserve weighs when to cut interest rates. That decision is now in doubt — the hotter CPI report undermines the case for near-term rate relief.

The Federal Reserve responded by holding rates steady in the 3.5% to 3.75% range and raising its inflation forecast. Policymakers now expect just one rate cut — in 2026. Markets have fully priced out a cut next month and even assigned a small probability to a hike.

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monetary policy

Fed Officials Consider Rate Hikes to Counter Middle East Energy Price Surges

The target range for the federal funds rate may be adjusted upward. This possibility is reflected in a new two-sided description of future interest-rate decisions. The Federal Open Market Committee held the benchmark policy rate in a range of 3.5% to 3.75% during its March 17-18 meeting, but policymakers now worry that prolonged conflict in the Middle East will lead to persistent increases in energy prices. Global energy costs surged for three weeks following that meeting. Because inflation has run above target for five years, officials noted that long-term inflation expectations may become more sensitive to these energy price increases. This volatility leads to persistent increases in underlying inflation, which may prompt officials to consider raising interest rates if inflation remains above target levels.

That shift is what’s crushing precious metals. Gold doesn’t just trade on fear — it trades on the opportunity cost of holding an asset that pays no yield. With rates expected to stay higher for longer, that cost has spiked. The dollar, meanwhile, has outperformed all major currencies, amplifying pressure on commodities. The strong dollar and elevated crude prices are now the dominant forces in markets — not safe-haven demand.

Related Brief21h ago

foreign exchange

Geopolitical Risk, Not Oil, Is Now the Ringgit’s Anchor

The ringgit strengthened to 3.98 against the US dollar this week, but gains are stalling — not because of domestic weakness, but because global risk sentiment is still tethered to Middle East volatility. Lower oil prices should be helping the ringgit: Brent crude retreated, easing input costs and improving Malaysia’s trade balance. When oil falls, import bills shrink and inflation pressure cools — a classic tailwind for emerging market currencies. Yet the ringgit isn’t capitalizing. Renewed Israeli strikes in Lebanon have shattered confidence in a durable ceasefire, keeping oil prices elevated on geopolitical risk alone. That risk premium is now the dominant force, outweighing any fundamental relief from lower production costs. Investors aren’t buying the rally. They see the reprieve as temporary. At the same time, the US dollar is firming on strong domestic data — a 4.3% unemployment rate and solid payroll growth — reinforcing the Federal Reserve’s higher-for-longer rate stance. That makes dollar assets more attractive, pulling capital from currencies like the ringgit. Defensive positioning ahead of diplomatic talks in Islamabad only deepens the caution. Kenanga expects the currency to trade between 4.00 and 4.05 in the near term. Technicals show resistance at 4.01 and support at 3.96, but range-bound action is likely until there’s concrete progress on de-escalation. Until then, markets won’t take aggressive long positions. Sustained volatility in Strait of Hormuz-linked energy prices remains a direct threat to Malaysia’s inflation and fiscal outlook — a reminder that for small, open economies, the fate of the currency often hinges not on what happens at home, but on what happens far beyond its shores.

Related Brief1d ago

inflation

Gasoline prices surge 21.2% in a month as Iran blocks Strait of Hormuz, pushing inflation to 3.3%

Related Brief1d ago

monetary policy

Fed Officials Consider Rate Hikes to Counter Middle East Energy Price Surges

Related Brief21h ago

foreign exchange

Geopolitical Risk, Not Oil, Is Now the Ringgit’s Anchor

The Iran war isn't boosting gold — it's killing rate-cut hopes and making dollars more expensive to hold

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