Middle East Conflict Fuels Dual Strait Crisis, Gold Hits Two-Week High! How Much Further Can It Rise Under the Shadow of Fed Rate Hikes?

This latest rally has been driven by a combination of a softer U.S. dollar, technical buying, and the sharp escalation of geopolitical tensions in the Middle East, putting gold back in the spotlight. Investors are closely watching next week's Federal Reserve interest rate decision, while oil prices surging to nearly six-week highs have intensified inflation concerns, further boosting safe-haven demand.

The escalating tensions in the Middle East have become the strongest support for gold prices. The conflict between the United States and Iran has continued for several days, with U.S. forces carrying out airstrikes against Iranian targets for the 12th consecutive night. President Trump stated that if Iran attacks any ships in the Strait of Hormuz, the United States will destroy Iran's bridges or power plants. This firm stance has further escalated the situation.

Meanwhile, the Iran-backed Houthi forces in Yemen have opened a new front by threatening to block the Bab el-Mandeb Strait. They have also claimed responsibility for attacks on two Saudi oil tankers, forcing several tankers to reroute or turn back. Security risks in the Red Sea have risen sharply, and the European Union's naval escort mission has also issued warnings, advising vessels to avoid the area. These developments have directly increased the risk of global energy supply disruptions and significantly enhanced gold's appeal as a traditional safe-haven asset.

The sharp rise in oil prices has directly lifted market expectations for inflation. The yield on the U.S. two-year Treasury note has reached a 17-month high, while the 10-year Treasury yield has also moved higher. Investors are concerned that higher energy prices could reignite inflation, forcing the Federal Reserve to adopt a more hawkish monetary policy. Under such conditions, gold's inflation-hedging and safe-haven characteristics have both been reinforced, making it an important tool for investors seeking to hedge risks.

However, rising oil prices may strengthen expectations of further Federal Reserve rate hikes, which could limit gold's upside potential to some extent. Even so, market sentiment remains dominated by safe-haven demand, and the momentum created by the recent technical breakout continues to support short-term gains.

The market's primary focus is now next week's Federal Open Market Committee (FOMC) interest rate decision. If inflation data exceeds expectations due to higher energy prices, the Federal Reserve may take action later this year, or even sooner.

Higher interest rates generally create headwinds for non-yielding assets such as gold. However, the severity of the current Middle East conflict may outweigh this negative factor. Historical experience shows that during periods of geopolitical crises combined with economic uncertainty, gold often remains resilient even in a rising interest rate environment. Gold prices are currently well above previous levels, indicating that the market is increasingly pricing in long-term uncertainty.

Market Insight:

Gold remains range-bound on the 4-hour chart, with the MACD lines and histogram converging above the zero line. This latest rally has been driven by a combination of geopolitical risks, U.S. dollar movements, inflation expectations, and technical factors. The dual strait crisis in the Middle East is unlikely to be resolved quickly in the short term, which is expected to continue providing safe-haven support for gold.