September 28, 2026
The price of gold fell at the start of the week, slipping below the $4,200-per-ounce mark. With a decline of more than three percent from the last closing price, this marks the lowest level in seven weeks. Commodity investors are currently facing a seemingly paradoxical situation: Although geopolitical tensions are high, fears of further interest rate hikes are prevailing. The coming days could provide decisive momentum with new U.S. inflation and labor market data.
The interest rate turnaround that isn’t (yet) one
A look at the numbers illustrates the current period of weakness: From its all-time high of $5,608 in January 2026, the market has lost about a quarter of its value. Compared to the same time last year, however, it is still up by more than eight percent.
The primary cause of the current correction lies in a changed interest rate landscape. Markets are currently not discussing rate cuts, but rather additional tightening by the U.S. Federal Reserve. In September 2026, the federal funds rate rose to 4.00 percent (from 3.75 percent). With this move, the Fed has broken out of the months-long sideways trend. The futures markets are now pricing in a high probability of another rate hike in October.
Several Fed officials are reinforcing this hawkish stance. Beth Hammack, president of the Cleveland Fed, for example, recently pointed to robust economic growth and a resilient labor market. Together with concerns about persistent government debt, these factors are driving long-term bond yields higher—a classic headwind for interest-free gold. Furthermore, under new Fed Chairman Kevin Warsh, the central bank’s communication style has shifted toward a more cautious approach. The markets are therefore reacting extremely sensitively to fresh economic data.
Strait of Hormuz Blockade: Inflation Trumps the Flight-to-Safety Instinct
Geopolitical crises are normally considered a surefire driver of the gold price. In the current case of the blocked Strait of Hormuz, however, another effect dominates, overshadowing the classic “flight-to-safety” reflex:
- The inflation channel: The deadlocked negotiations between Washington and Tehran are keeping oil prices artificially high.
- The consequence for interest rates: Expensive oil fuels long-term inflation risks (U.S. inflation rate in August: 3.40 percent). This forces the Fed to maintain its higher interest rate level, which in turn increases the opportunity cost of investing in gold.
This focus on interest rates is overshadowing the otherwise strong fundamentals in the short term. According to Joe Cavatoni, Senior Market Strategist at the World Gold Council, gold—as a highly macro-sensitive asset—is currently reacting more strongly to interest rate expectations than to fear.
Nevertheless, a significant counterbalance remains intact: massive physical demand. In July, the People’s Bank of China expanded its reserves for the 21st consecutive month (up 19.9 metric tons)—the largest purchase since the fall of 2023. For investors, this means that while short-term interest rate fears are weighing on the price, continued central bank purchases and robust demand from Asia form a strong long-term foundation. The upcoming PCE deflator (the Fed’s preferred inflation indicator) and U.S. labor market data are likely to set the direction for the coming weeks.
