US-Iran Tensions Worsen Again Over the Weekend; Oil Returns to $90, Gold Drops Below $4,400

TradingKey - As of the Asian session on August 31, international oil prices rose sharply, with Brent crude (UKOIL) breaking back above $90, while gold (XAUUSD) prices extended last Friday's decline, briefly dropping below $4,400 intraday. The primary driver behind today's oil and gold price movements was the weekend re-escalation of the US-Iran military conflict, which heightened market concerns over Middle East crude supply and the US inflation outlook.

Brent crude oil daily price chart, Source: TradingView

On Sunday, the US military launched strikes against Iran's Larak Island in the Strait of Hormuz, targeting two rocket launchers. This marks the first US military action against targets inside Iran since late July. US Central Command stated that Iran's Islamic Revolutionary Guard Corps was preparing to use rockets and naval mines to threaten shipping in the Strait of Hormuz.

Iran subsequently retaliated. Iranian media reported that Iran launched ballistic missiles at two US military bases in Jordan. Meanwhile, US President Trump stated on social media Sunday that Iran's main oil export hub, Kharg Island, was under attack, though to date, neither the US military nor Iranian authorities have confirmed any strike on Kharg Island.

Renewed clashes between the US and Iran quickly drove up crude oil prices. During Monday's Asian trading session, Brent crude surged over 3% at one point to $90.98, while WTI crude (USOIL) also jumped over 3% to $86.02. Shipping risks in the Strait of Hormuz returned to market focus; before the war broke out, this waterway carried nearly one-fifth of global oil shipments. Over the weekend, the number of trackable commodity vessels passing through the strait dropped to about five per day.

As for gold prices, hawkish remarks by Federal Reserve Chair Warsh at the Jackson Hole symposium last week pushed US Treasury yields higher. The market currently assigns a roughly 57% probability to a Fed rate hike in September, weighing on gold prices and causing them to extend their decline today amid the bearish fallout from the US-Iran situation. Spot gold fell below $4,400 today, hitting a low of $4,396.36 and continuing last Friday's slide of over 3%.

Overall, crude oil regaining the $90 level further reinforced market concerns that rising energy prices will fuel inflation. Against the backdrop of escalating US-Iran tension, rising oil prices, and mounting expectations of a Fed rate hike, US Treasury yields remained elevated, putting pressure on non-yielding gold. Markets this week will continue to monitor the US-Iran conflict and shipping conditions in the Strait of Hormuz while awaiting Friday's release of the US August nonfarm payrolls report to gauge whether the Fed might raise interest rates further in September.