Global financial markets experienced significant volatility on Thursday (September 10), with gold prices falling sharply. Spot gold once dropped nearly 2%, hitting a low of $4,313.58 per ounce, before closing near $4,316. Gold futures settled down 1.2% at $4,407.30. Meanwhile, Brent crude oil prices surged past $105, approaching the $110 mark, US Treasury yields climbed sharply, and the US dollar index recovered its losses. On the surface, geopolitical conflicts should have supported safe-haven assets, but gold bucked the trend and weakened, a result of a triple whammy: soaring oil prices, renewed inflationary pressures, and rising expectations of a Fed rate hike. On Friday (September 11) in early Asian trading, spot gold hovered at low levels, currently trading around $4,315 per ounce, with market attention continuing to focus on US CPI data and the Middle East geopolitical situation.

Escalating geopolitical conflicts: Soaring oil prices are the direct driving force

On Thursday, Yemen's Houthi rebels seized the key Red Sea port of Mocha and advanced south along the coastline to the vicinity of the Hanish Islands, further approaching the strategically vital Bab el-Mandeb Strait. This development echoes the tensions in the Strait of Hormuz. Military sources indicate that the Houthi operation is directly directed by the Iranian Revolutionary Guard, extending its influence to the crucial waterway at the southern end of the Red Sea. The Yemeni government forces and their allies are attempting to move south to control locations such as Dubab in an effort to gain dominance over the strait. The UN Special Envoy for Yemen has also warned that the conflict has entered a "new and more dangerous phase," posing a serious threat to global freedom of navigation. Saudi Arabia, the world's largest oil exporter, has become heavily reliant on the Red Sea route for crude oil exports since the de facto blockade of the Strait of Hormuz. The Houthis have previously announced a naval blockade against Saudi Arabia and escalated their attacks. If they further control the Bab el-Mandeb Strait, Iran and its allies will gain a key strategic advantage in their confrontation with the United States, significantly reducing the supply capacity of alternative shipping routes. The market reacted swiftly: Brent crude oil surged over 6% on Thursday, breaking through $105 per barrel, and even approaching or touching $109 at its highest point during the session; US crude oil also broke through the $100 mark, reaching $104.44 at one point, marking its biggest single-day gain in nearly two months. Analysts pointed out that the threat is no longer limited to a single shipping chokepoint, but may spread to regional export routes, production facilities, and broader energy infrastructure. The surge in oil prices directly pushed up global inflation expectations. The US Producer Price Index for August showed that energy prices rose sharply by 4.2% month-on-month, ending two consecutive months of decline; diesel prices surged even more dramatically by 24.1%, contributing more than one-third to the increase in commodity costs. Overall, producer prices for goods rose by 1.1%. This energy-driven inflationary pressure quickly transmitted to the financial markets' repricing of monetary policy, becoming one of the core factors suppressing gold prices.

Inflation data is overheated: Expectations for interest rate hikes are rising rapidly.

The August PPI data released by the U.S. Department of Labor became another key catalyst. Final demand PPI rose 0.4% month-over-month, in line with market expectations, but the year-over-year increase widened to 5.4%, higher than previously expected; July's data was also revised upwards. Core commodity prices, excluding food and energy, rose 0.4%. More noteworthy are the details on the service side: airfares surged 4.2% after falling in July, road freight costs jumped 2.0%, and hospital outpatient and inpatient service prices rose 0.4% and 0.5%, respectively. These items have a direct impact on the Federal Reserve's preferred Personal Consumption Expenditures (PCE) price index. Economists estimate that the core PCE month-over-month increase in August may have reached around 0.3%. The CME FedWatch tool shows that the market's probability of a 25 basis point rate hike by the Federal Reserve at its September 15-16 meeting quickly rose from about 62% before the data release to around 70%. Although some institutions still believe the Federal Reserve may hold rates steady, citing reasons including the upcoming adjustment to the PCE calculation methodology which may revise historical data downwards, and the possibility of moderate core inflation, overall market sentiment has clearly shifted to a hawkish stance. The European Central Bank (ECB) also raised interest rates by 25 basis points as expected on Thursday, further reinforcing the resolve of global central banks to combat energy inflation. Meanwhile, the US Treasury market reacted sharply. The 10-year Treasury yield rose by more than 10 basis points to around 4.92%-4.95%, its highest level since the end of 2023; the 30-year yield touched near its highest level since 2007; and the two-year yield also rose to its highest point in more than two years. Rising US Treasury yields mean an increased opportunity cost of holding gold, directly pressuring gold prices. The US dollar index also strengthened, recovering some of its losses from earlier in the week, reaching around 99, further increasing the cost of dollar-denominated gold for non-US buyers.

Market Sentiment and Fund Flows: Safe-Haven Rationale Temporarily Takes a Backseat

Normally, escalating US-Iran conflict, shipping risks in the Red Sea and the Strait of Hormuz, and Trump's statements that the war could continue until after the November midterm elections should strengthen gold's safe-haven appeal. Trump even mentioned a possible attack on Iran's Natanz facility, and the Iranian Revolutionary Guard vowed to retaliate. However, the market is more focused on the stickiness of inflation and the risk of monetary policy tightening this time. Persistently high oil prices mean that inflation may be more persistent, and the bond market must price this in, thus putting pressure on gold prices. Some analysts point out that recent increases in crude oil purchases by Asian countries have boosted the spot market; if this trend continues, it could amplify the impact of supply disruptions; conversely, it could suppress further oil price increases. While US crude oil inventory data showed a slight decline, the decrease was less than expected, offering limited support for oil prices. Overall, short-term funds are more inclined to reduce their allocation to non-interest-bearing assets like gold under high interest rate expectations, shifting towards more attractive-yielding US Treasuries or dollar assets.

Outlook: Short-term pressure, but medium- to long-term support.

Given the current situation, gold faces significant pressure in the short term. If Friday's August CPI data continues to be overly bullish, expectations of an interest rate hike may strengthen further, and gold prices may test lower support levels. If oil prices remain high due to geopolitical conflicts, inflation stickiness will continue to limit the upside potential for gold. However, from a medium- to long-term perspective, gold still has multiple supports: the US-Iran conflict has not truly ended, and shipping risks and energy supply uncertainties may repeatedly disrupt the market; global central banks are still accumulating gold reserves; if inflation eventually falls due to slowing demand or easing supply, expectations of a Fed policy shift will resurface. The current adjustment in gold prices is essentially the result of the market rebalancing between "geopolitical risk aversion" and "monetary tightening." The Houthi advance on the Bab el-Mandeb Strait, the continued tensions in the Strait of Hormuz, and the rebound in US domestic inflation data have collectively created a more complex pricing environment. Investors need to closely monitor the actual extent of subsequent shipping disruptions, oil price trends, and the Fed's final decision. In an environment of high uncertainty, gold's long-term allocation value has not disappeared, but short-term volatility will increase significantly. On the upside, watch for resistance around the 100-day moving average at $4,339 and the $4,400 level. On the downside, watch for support around the September low of $4,282 and the 50-day moving average at $4,268. (Spot gold daily chart, source: EasyTrade) At 07:45 Beijing time, spot gold is currently trading at $4317.18 per ounce.