Gold steadies near $4,333 as Fed opens September meeting amid Middle East oil shock

The spike in sentiment for a rate hike comes after turmoil in the Middle East brought oil prices to new highs. This weekend strikes in the middle east caused a major Saudi oil pipeline to shut down after drone strikes caused damage to some of its pumps. A ship was also struck causing the sailors to evacuate leading to one perishing and others injured. These attacks delayed a meeting set to take place today regarding the Strait of Hormuz.

The dollar had a sizable increase further pressuring gold lower with the US dollar Index gaining 0.36% on the day. This was likely tied to the US 10-year bonds breaking above a 5% yield today.

Tuesday brought a far calmer session by comparison, with gold futures slipping a modest $6.60, or 0.15%, to settle near $4,333.40. The smaller give-back, coming on the heels of Monday's steep decline, suggests the market has largely priced in this week's main event: the Federal Reserve's two-day September policy meeting, which formally opened this morning.

Presiding over his third FOMC gathering since taking the gavel from Jerome Powell in May is Chairman Kevin Warsh, whose hawkish tone at last month's Jackson Hole symposium has done much to fuel the current rate-hike odds. Warsh told central bankers gathered in Wyoming that he saw little evidence inflation trends had meaningfully improved, a characterization that helped push the FedWatch probability of a hike from roughly two-thirds in late August to Tuesday's reading near 92.5%. Should the Committee follow through Wednesday afternoon, it would mark the Fed's first rate increase since 2023 and hand Warsh — who has made a point of offering markedly less forward guidance than his predecessors — his most consequential decision yet.

The backdrop for that decision has only grown thornier. Crude prices extended their advance again Tuesday, with Brent trading above $105 a barrel and West Texas Intermediate near $102, both at levels not seen since the spring, as Saudi Arabia's East-West pipeline remained offline following last week's drone attack. Satellite imagery has shown extensive fire damage to the pumping station, and Aramco has yet to say how long repairs to the roughly 7-million-barrel-per-day artery will take, leaving the kingdom more reliant than usual on the contested Strait of Hormuz to move its crude. Energy Secretary Chris Wright said Tuesday he expects the line to resume operation soon, though traders are not waiting around to find out.

That same energy-driven inflation anxiety pushed the 10-year Treasury yield to its highest level since July 2007, spiking as high as 5.04% Tuesday before drifting back to roughly 5.01% — the fifth consecutive session of gains for the benchmark note. With headline inflation holding at 3.4% in August and core prices still elevated at 2.4%, well above the Fed's 2% target, the bond market is effectively daring Warsh's Committee to act. Nor is the Fed alone in leaning hawkish: the Bank of Japan is widely expected to raise its own benchmark rate Friday, adding to a rare stretch of synchronized global tightening.

Technically, gold's pause looks more like a pit stop than a reversal. Tuesday's narrow-range session held above the $4,286 support zone that has capped the last several pullbacks, while resistance remains stacked between $4,340 and $4,400 — the shelf Monday's selloff broke down from. A close back above that zone would go a long way toward repairing the near-term chart; a decisive break of $4,286 would open the door to a deeper correction toward the low $4,200s.

Gold's next major move will likely be dictated less by today's headlines than by tomorrow's statement, updated dot plot, and press conference — and, further out, by whether this week marks the start of a genuine tightening cycle or a one-and-done insurance hike.