Gold's bull run is facing its first major test.

On Monday, spot gold slipped 0.2% to close at $4,448.56 per ounce, after touching an intraday low of $4,396.43 - its weakest level since August 19th. December-dated U.S. gold futures fell more sharply, dropping 1.1% to settle at $4,481.50. This pullback has captured the market's attention, especially given that bullion had surged roughly 9.7% over the past month, putting it on track for its largest monthly gain since January. Silver and palladium have also shown remarkable strength.

However, sentiment shifted abruptly following hawkish remarks from Federal Reserve Chair Warsh at the Jackson Hole symposium, compounded by a spike in oil prices stemming from renewed U.S.-Iran tensions. Investors are now reassessing the interest rate trajectory, adding pressure to gold prices in the near term. This correction is not an isolated event, but rather the result of multiple converging factors.

Rising Rates and Inflation Expectations Weigh Heavily

Higher interest rates and rebounding inflation expectations have emerged as the core forces pressuring gold. Daniel Pavilonis, Senior Market Strategist at Stone X, noted that surging energy prices and declining crude inventories have pushed inflation expectations higher. Treasury yields continue to climb, while the U.S. dollar has held near two-week highs. Collectively, these factors create a challenging environment for the non-yielding metal. While a slight pullback in the dollar has limited gold's losses somewhat, the overall atmosphere has shifted from optimism to caution.

In early Asian trading on Tuesday, spot gold was oscillating narrowly around the $4,445 per ounce level. Market participants are now awaiting the U.S. ISM Manufacturing PMI, JOLTs Job Openings, and Construction Spending data for further direction.

Hawkish Fed Signals Reshape Market Expectations

The catalyst igniting this adjustment was Fed Chair Warsh's speech in Jackson Hole last Friday. He explicitly stated that if policymakers cannot be confident inflation is moving back toward the 2% target, the Fed would have "more work to do." The market interpreted this as the clearest hint of a rate hike to date. According to the CME FedWatch tool, trader odds for a September rate hike jumped rapidly from roughly 36% before the speech to around 64%, with some data points suggesting nearly 66%. This directly pushed Treasury yields higher, with the 10-year yield climbing to 4.768% - a level not seen since mid-January 2025 - and the 30-year yield also hitting recent highs.

Warsh reinforced this stance at the G20 Finance Leaders' meeting. He spoke of a global investment boom, noting that capital is no longer idle due to a lack of opportunities and that the old narrative of secular stagnation no longer applies. He even mused whether the U.S. economy's potential growth rate is being underestimated and whether productivity is undergoing positive changes. While these remarks bolstered growth expectations, they also signaled to the market that robust investment demand could make inflation stickier, requiring the Fed to maintain higher rates. The resulting rise in short-term rate expectations directly diminishes gold's relative appeal.

Meanwhile, attention is turning to this week's U.S. employment data. The ADP employment report and the nonfarm payrolls figure will be crucial observation points. Last month's unexpectedly weak jobs data had previously dampened rate hike bets. Economists currently forecast around 55,000 new jobs added in August. If the data continues to weaken, the case for a Fed rate hike would significantly diminish; conversely, if employment shows resilience, the September 15-16 FOMC meeting is more likely to deliver a tightening signal. This high level of uncertainty leaves gold prices particularly sensitive at current levels.

Geopolitical Tensions Drive Oil Higher, Stoking Inflation Worries

Another key storyline pressuring gold stems from the sudden escalation of U.S.-Iran tensions. Over the weekend, U.S. forces struck launchers on Iran's Larak Island, marking the first known direct military action since late July. Iran responded by firing missiles at a U.S. military base in Jordan. President Trump publicly stated the U.S. would "hit them very hard" and promised further action. The six-month-old conflict, which had evolved into economic confrontation and shipping blockades, now risks reigniting into open hostilities.

Consequently, oil prices surged more than 2.5% on Monday to near one-week highs. Brent crude settled around $90.49 per barrel, while WTI crude reached $85.76. With shipping through the Strait of Hormuz - a vital chokepoint for roughly one-fifth of global oil - at extremely low levels, a risk premium for supply disruption has been repriced into the commodity. The oil rally directly intensifies inflation concerns, especially as U.S. consumers already face higher fuel costs.

JoAnne Bianco, a strategist at Chicago-based BondBloxx Investment Management, stated that the rebound in crude prices complicates the inflation picture, and if the rally persists, the market will demand higher risk compensation. Notably, the Trump administration has also intensified secondary sanctions on Iran and indicated it may use Venezuelan oil to replenish the Strategic Petroleum Reserve. While these measures could temporarily alleviate some supply anxiety, geopolitical risk itself continues to underpin oil prices.

Gold, traditionally a safe-haven asset, would theoretically benefit from escalating conflicts. However, in the current environment dominated by rate expectations, the power of haven buying has been visibly weakened. Investors are more concerned about whether high oil prices will force the Fed to adopt an even more aggressive anti-inflation stance.

Monthly Gains Remain Impressive, But Short-Term Momentum Faces Tests

Despite the sharp single-day and early-week pullback, gold is still up 9.7% for the month, marking one of its best monthly performances this year. Silver and palladium have also been standout performers, with palladium recording its best monthly gain of the year. This indicates that over the past few weeks, optimism over rate cuts or easing expectations, along with hedging demand against global uncertainties, provided strong support for precious metals.

However, the current environment has shifted. Although the U.S. dollar index dipped slightly to around 99.43 on Monday, it had previously hit a high not seen since August 17th. The upward trend in Treasury yields is also persisting. The negative correlation between these macro variables and gold prices is strengthening. Meanwhile, five-year and ten-year TIPS breakeven inflation rates remain around 2.3%, suggesting market pricing for medium-to-long-term inflation is still relatively moderate. Yet, persistently high oil prices could alter this picture.

This Week's Data and Policy Signals to Determine Direction

Looking ahead, market focus is highly concentrated on U.S. employment data, followed by producer price index and consumer price index reports. The jobs figures will directly influence the final pricing of September rate hike odds. The inflation data could either validate or undermine Warsh's assertion that there is "still work to be done." If employment weakens and inflation cools, gold could find renewed support. Conversely, if the data shows economic resilience coexisting with sticky inflation, gold may test support near its two-week low.

From a longer-term perspective, gold's fundamental narrative hasn't completely collapsed. The global investment boom, geopolitical risks, and rising debt levels in major economies continue to provide a long-term story for precious metals. However, in the near term, the repricing of the rate path will be the dominant force. Traders and investors will need to rebalance between "safe-haven demand" and "rising opportunity costs."

In summary, gold's decline to a two-week low is a direct result of the shift in Fed policy expectations combined with geopolitical conflicts. The impressive monthly gains show that the earlier upward momentum wasn't weak, but the market is now beginning to price in a potentially higher rate environment. This week's employment and inflation data will be critical inflection points. Whether gold can maintain its strength into September depends on whether these figures can reignite easing expectations or further consolidate the hawkish narrative.

As of 07:32 Beijing time, spot gold was trading at $4,447.31 per ounce.