Gold pulls back as oil rally fuels Fed rate hike fears

Spot gold retreated on Thursday after touching a two-week high in the previous session, as a sustained rally in crude oil prices stoked inflation fears and reinforced expectations that the Federal Reserve will raise interest rates at its September meeting. Gold was trading around $4,126–$4,132 per ounce, down from Wednesday's peak near $4,166.StackFi+2

Oil Surge Drives Inflation Concerns

The pullback came as crude oil climbed for a fifth consecutive session, with West Texas Intermediate rising to around $88 per barrel — a six-week high — on escalating hostilities between the United States and Iran and renewed Houthi attacks on tankers in the Red Sea. Brent crude surpassed $96 per barrel in Asian trading, its highest since early June.The Mighty 790 KFGO | KFGO+1

The oil surge has revived fears that inflation will remain sticky, complicating the Federal Reserve's policy calculus just days before its July 28–29 meeting. According to Reuters, the military escalation has once again nearly shut the Strait of Hormuz, threatening global supply routes. Goldman Sachs The Goldman Sachs Group, Inc. ↗ 1.16% has warned that if crude returns to $100, monthly core inflation could be boosted by 3 to 4 basis points in the months ahead.Fortune+1

Rate Hike Expectations Climb

Market pricing for a September Fed rate hike has steadily increased. As of late June, the CME ↗ 5.00% FedWatch Tool showed approximately 80% probability of a hike at the September 15–16 meeting. By early July, that had moderated to around 60%, but the latest oil-driven inflation scare has pushed expectations higher again. The Fed's next decision is due July 29, where futures markets currently price roughly a 42% chance of a hike.Reuters+2

Fed Chair Kevin Warsh has emphasized the central bank's commitment to reducing inflation, a message markets have interpreted as hawkish. Nine of 18 FOMC officials projected at least one rate hike in 2026 at the June meeting.Yahoo+2

Gold Faces Technical Crossroads

Despite the pullback, analysts note that gold's broader structure remains intact above the $4,100 support zone. Resistance is seen near $4,166–$4,200, with a break above potentially opening the path toward $4,300. On the downside, FXStreet analysis points to support at $3,941 and then the October 2025 low near $3,886, broadly aligning with World Gold Council technical analysis identifying a floor around $3,857–$3,887.FPG Fortune Prime Global+2

Ole Hansen, head of commodity strategy at Saxo Bank, has noted that the interplay of rising bond yields, a stronger dollar, and elevated policy rates continues to challenge non-yielding assets like gold. With the ECB decision, U.S. jobless claims data, and an EIA storage report all due Thursday, traders are bracing for further volatility across commodities.HDFC sky+1