Gold prices dropped 2.6% on Monday night as geopolitical tensions in the Strait of Hormuz drove oil prices higher. The decline reflects a shift in investor preference toward the US dollar and higher bond yields. Investors are now tracking upcoming US inflation data and Federal Reserve policy testimony for further market direction.
Gold prices faced selling pressure on Monday, falling 2.6% to trade at $4013. This decline follows a volatile week for the precious metal, which finished down 1.3% for the period ending July 10. The downward move in gold coincides with a sharp rise in oil prices, as geopolitical friction between the United States and Iran has sparked fears regarding global energy supply routes.
Impact of Strait of Hormuz Tensions
The conflict centers on the Strait of Hormuz, a critical transit point for global oil shipments. Recent reports indicate a reduction in maritime traffic following US announcements of new measures for vessels entering and leaving Iranian waters. These developments have heightened concerns over supply stability, leading to a more than 4% jump in Brent crude oil futures on Monday. For investors, the surge in energy costs often creates a complex environment, as it can fuel inflation expectations and influence central bank policies.
Shifts in Dollar and Bond Yields
As tensions escalated, capital appears to be moving toward traditional safe-haven assets and higher-yielding debt. The Dollar Index rose 0.15% to 101.11, while US Treasury yields saw notable gains. Two-year bond yields reached 4.25% and ten-year yields climbed to 4.60%. These levels represent the highest points recorded since February and May 2025, respectively. The rise in yields typically increases the opportunity cost of holding non-interest-bearing assets like gold, which can explain the recent selling pressure.
Central Bank Demand and ETF Trends
Despite the price dip, the broader trend among central banks remains focused on accumulation. Data shows that global central banks added 41 tonnes of gold to their reserves in May, with China’s central bank increasing its holdings for the 20th consecutive month. Additionally, the National Bank of Poland reported a significant acquisition of 82 tonnes during the first half of 2026. Conversely, gold-backed Exchange Traded Funds (ETFs) have seen a reduction in holdings, which stood at 96.57 million ounces as of July 10. This is a decline of over 4 million ounces since late February, reflecting shifting sentiment among retail and institutional investors.
Upcoming Market Triggers
Market attention is now shifting toward upcoming macroeconomic data and policy signals. Federal Reserve officials, including Governor Christopher Waller, have recently highlighted the possibility of interest rate hikes if inflation remains persistent. The primary focus for the coming days will be the testimony of Fed Chair Warsh before the US House Financial Services Committee and Senate Banking Committee. Investors will also monitor the release of US Consumer Price Index (CPI) figures, as these data points are likely to dictate short-term volatility and help determine if gold can find support at lower levels or if the current downward trend will continue.