Gold Faces Volatility as Fed Weighs Rate Hike Amid Iran War, Crude Surge

Gold and silver prices are set for a volatile week as the US Federal Reserve’s rate-setting meeting coincides with escalating US-Iran tensions, elevated crude oil prices and a firm dollar, analysts said.

The Federal Open Market Committee’s two-day meeting on September 15-16 will deliver its decision Wednesday at 2 pm. Market expectations for a 25-basis-point rate hike surged after Friday’s consumer inflation data held steady at 3.4 percent — unchanged from the prior month and well above the Fed’s 2 percent target. The probability of a hike stood at more than 85 percent, according to the FedWatch tool.

The Fed last raised rates three years ago, when it was fighting post-pandemic inflation. Rates currently stand at between 3.50 and 3.75 percent.

Fed Chair Kevin Warsh, appointed by President Donald Trump, faces his first major test, according to analysts cited by the Taipei Times. David Wessel of the Brookings Institution said “this is the test. This is what comes with that job, and now he has to decide how to handle it. He’s either going to completely disappoint the markets, or he runs the risk that he’s going to start to anger Donald Trump.”

Claudia Sahm, chief economist at New Century Advisors, told the Taipei Times that “it’s quite likely that the Fed will raise interest rates next week” but added “it’s not a done deal. This is a difficult decision for them to make.”

Warsh has previously advocated for lower rates due to expected productivity gains from AI, but has recently emphasized the Fed’s inflation-fighting mandate.

The Fed decision will directly influence precious metals, the Times of India reported. “Gold will remain highly sensitive to Fed commentary, crude oil movements, the US dollar, inflation expectations and geopolitical developments,” Jateen Trivedi, VP research analyst at LKP Securities, told the paper. “Any moderation in crude prices or a less hawkish stance by the US Federal Reserve could support a recovery in gold, while renewed strength in crude oil or a hawkish policy signal may trigger fresh selling.”

Crude oil ended last week above $100 a barrel amid escalating hostilities in West Asia — a reference to Trump’s war on Iran, which the Taipei Times cited among factors pushing prices higher alongside tariffs and the AI boom. The White House’s tariff policies and the ongoing AI-driven demand surge have also kept inflation elevated.

Recent price action reflects crosscurrents. In the domestic market, gold futures for October delivery edged up Rs 17 to Rs 1,52,784 per 10 grams on the Multi Commodity Exchange. Silver fell Rs 2,684, or 1.13 percent, to settle at Rs 2.34 lakh per kilogram. Globally, Comex gold futures for December delivery fell 1.5 percent to $4,408.9 per ounce, while silver declined 2.34 percent to $65.19 per ounce.

Pranav Mer, senior vice president at JM Financial Services, told the Times of India that “gold futures moved between gains and losses throughout last week, but overall remained under selling pressure and closed the week in negative territory by 1.5 percent.” He added that downside in the domestic market was capped by a sharp fall in the rupee.

Investors will also track monetary policy decisions from the Bank of England and Bank of Japan this week, with both expected to raise rates by 25 basis points, Mer said. Inflation data from India, Germany, the UK, the eurozone, the US and Japan are also on the calendar, as are China’s investment and factory activity figures for industrial metals.

Trivedi of LKP Securities said the outlook for gold and silver remains volatile and data-driven, with the Fed decision likely to provide the next major directional trigger.