Gold extended its decline for a fourth consecutive session on Wednesday, slipping to $4,118.18 an ounce and marking a sharp reversal of fortunes for the precious metal. Since reaching its record high in January, gold has fallen by about 26%, with roughly 22% of the drop occurring since the onset of the Iran conflict, a notable development for an asset often favored during times of geopolitical uncertainty.
Record oil prices drive inflation and shape gold’s outlook
The Iran conflict has sent ripples through global energy markets, with Brent crude prices climbing to $111.99 a barrel on Tuesday, their highest level since May. Persistent attacks on shipping and concerns over the security of Saudi energy infrastructure have kept oil markets on edge, although prices later settled lower at $108.79. Even with some easing, analysts say risks to Middle East supply routes remain elevated.
Higher oil prices are fueling inflation by raising costs across transportation, manufacturing, and consumer goods. For gold, the main challenge is that sustained inflation could push the Federal Reserve to maintain or even increase borrowing costs for a longer period. This environment tends to reduce investor demand for non-yielding assets such as gold.
Bas Kooijman, CEO of wealth management firm DHF Capital, stated that elevated oil prices are reinforcing concerns about persistent inflation and restrictive US monetary policy, making alternatives like cash and government bonds more attractive than gold.
“When crude remains expensive, that can keep inflation risks in play and encourage investors to look for yield in other safe assets instead of holding onto gold,” Kooijman noted.
While periods of war and unrest traditionally bolster bullion buying, the prospect of higher returns in other markets often draws capital away from gold.
Expectations rise for further Federal Reserve tightening
Futures markets now price a roughly 16% chance that the Federal Reserve will raise interest rates during its upcoming meeting on October 27–28. Meanwhile, the probability of at least one more hike by December has climbed to approximately 87% based on current interest-rate futures.
The Fed lifted rates by a quarter-point in September to an effective range of 3.75%–4%, following a 3.7% annual rise in US consumer prices in September. Persistently high energy costs have increased concerns that the central bank may struggle to achieve its 2% inflation target in the near term.
Analysts at Societe Generale remarked that gold has not gained significant traction, even during episodes of weakness in equity and credit markets and when US real yields have softened. They suggested that previous inflows into gold may have artificially elevated its price, making Treasuries a more appealing safe haven at present.
Societe Generale analysts pointed out that, “Gold has not benefited convincingly from recent market volatility, as higher Treasury yields and reduced futures positions add pressure.”
The Federal Reserve is set to release its preferred inflation measure, the PCE price index, on October 29, which could further influence gold’s trajectory depending on the central bank’s policy decision in October.
Technical supports and investment flows shape next steps
Gold is now testing key support around $4,100 per ounce. A decisive break below this region could open downside targets at $4,067 and potentially $4,000. Meanwhile, a recovery would require gold to overcome resistance levels at $4,180 and $4,200.
| Gold Price Level | Significance |
|---|---|
| $4,100 | Current support |
| $4,067 | Next support if break occurs |
| $4,000 | Key psychological level |
| $4,180–$4,200 | Main resistance zone |
FXStreet analyst Dhwani Mehta assessed on October 20 that sellers remained favored while gold traded below its 21-day moving average, then located near $4,180.
Despite September’s weakness, some longer-term investors are maintaining their positions in gold. Johan Palmberg, an analyst at the World Gold Council, linked gold’s downturn to factors such as rising US Treasury yields, a stronger dollar, and decreased futures trading, even as exchange-traded fund (ETF) demand remained steady.
The World Gold Council is an industry organization that provides information and advocacy for the gold sector globally.
Looking ahead, traders and investors will watch closely for the next Federal Reserve policy signals and how persistent inflation pressures, driven in part by oil markets, continue to affect gold’s role as a safe-haven asset.
