Gold declines as US rate hike expectations rise amid Strait of Hormuz tensions

Gold is having a rough go of it lately, and the reasons are piling up fast. A combination of hawkish signals from US officials and simmering tensions in the Strait of Hormuz has pushed rate hike expectations higher, dragging the precious metal lower in the process.

Here’s the thing about gold: it doesn’t pay interest. When the cost of holding dollars rises, the opportunity cost of sitting in gold rises with it.

Two pressures, one direction

The Strait of Hormuz is one of those places that sounds abstract until it isn’t. Roughly 20% of the world’s oil supply passes through that narrow corridor between Iran and the Arabian Peninsula. When tensions flare there, oil markets feel it first, and the ripple effects spread quickly into inflation expectations and, by extension, monetary policy bets.

That’s exactly what’s happening now. Escalating tensions in the region have stoked fears of supply disruptions, which feed into inflation concerns. Inflation concerns, in turn, give the Federal Reserve more reason to keep rates elevated or push them higher still.

US officials have been leaning into that narrative. Comments from policymakers have reinforced the market’s growing conviction that rate cuts are not arriving anytime soon, and that another hike remains on the table. That kind of language has a predictable effect: the dollar strengthens, Treasury yields climb, and gold takes the hit.

The macro setup gold finds itself in

The dollar and gold have historically moved in opposite directions. A stronger dollar makes gold more expensive for buyers holding other currencies, which reduces demand. Pair that with rising Treasury yields offering real returns, and the classic argument for gold, as a store of value and inflation hedge, gets complicated fast.

For crypto investors watching from the sidelines, the direct connection between this gold move and digital assets is thin. Bitcoin and other crypto assets have not been implicated in the current market rotation, and there is no strong evidence of capital flowing from gold into crypto or vice versa in response to these specific developments. The two asset classes are trading on largely separate narratives right now.

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