Why Is Gold Price Falling Globally? How US-Iran Tensions, Crude Oil Rates And Fed Interest Rates Are Hurting the Yellow Metal

To our surprise and against the forecast, the gold price in India and around the world is falling. Despite its track record from the past few years, where gold used to hike higher before every festival and wedding season, domestically. The demand used to surge so much that the gold price rose to record-breaking points. This is how gold made a historic hike last year by crossing the ₹1 lakh mark. Unlike those situations, this gold price crash is about all the global factors affecting it from all around the world. This alters the investor sentiments as well.

Right now, globally, gold prices are falling. The precious metal is under pressure, and the main reason behind it is rising crude oil prices and a new conflict between the US and Iran. This conflict has raised concerns over crude oil transport, potentially pushing oil prices higher.

Generally, gold is considered a safe-haven asset. Investors put money in gold when there is instability globally. Right now, crude oil is taking the place of the precious metal.

Gold Price In India Today

Gold Price Near India (Global Gold Rates)

Why Is Gold Price Falling Despite Middle East Tensions?

Usually, any geopolitical tension pushes gold higher in its value, but this time, the glitter is lowering as a surprise. The question you might have is, why is gold falling and acting against its nature? I have an answer to it. Let's decode the loop.

There are two reasons behind the fall of gold and rise of crude oil prices. The first reason is the US Fed's interest-rate outlook. With Kevin Warsh's hawkish remarks at the recent FED conference, investors have guessed the move. The FED Chair's remark hints at the same or higher interest rate. A higher interest rate makes gold shine less and so the prices fall hard. As gold pays no interest, investors have become a  little less interested and the whole mood has shifted.

The second reason is the US-Iran tensions. Fears of oil supply disruptions have pushed Brent crude to $95.50 a barrel on Sept. 2. Higher oil prices can increase inflation, creating expectations for higher interest rates.

All of this turned the pressure on gold, and spot gold fell to $4,321 per ounce over the past two hours, its lowest level in over three weeks.

The chain is simple

• Middle East tensions increase oil supply concerns.
• Higher crude oil prices increase inflation worries.
• Higher inflation may force central banks to keep rates high.
• Higher interest rates and bond yields make gold less attractive.
• Investors move towards interest-paying assets, putting pressure on gold.

How Does Rising Crude Oil Affect Gold? 

Why Is This Important for India, and What Happens Next?

For the longer run, high oil prices will increase the transportation cost, and a weaker rupee against the dollar will eventually make gold costlier. The US economic data will be important now. All eyes are on the FED decision on interest rates. Strong data or hawkish Fed comments could put more pressure on gold. Middle East tensions are not lifting gold this time because they are also pushing oil prices higher, increasing inflation fears, interest rates and bond yields. This in return creats a lot of instability in the Indian markets and for the gold future contracts. These instability can make the gold price fluctuate randomly on any day. The increased risk of inflation is also one topic to keep in mind.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Information has been sourced from reputable reports, including GoodReturns and Reuters.