Global financial markets were thrown into turmoil on Thursday, with gold prices suffering a sharp selloff despite escalating geopolitical tensions. Spot gold tumbled nearly 2% to hit an intraday low of $4,313.58 per ounce before settling near $4,316, while gold futures settled 1.2% lower at $4,407.30.

Meanwhile, Brent crude surged past $105 and approached the $110 mark, US Treasury yields climbed sharply, and the dollar index recovered lost ground. On the surface, geopolitical conflict should typically bolster safe-haven assets, but gold moved inversely, falling victim to a triple whammy of soaring oil prices, reignited inflation concerns, and rising expectations of further Federal Reserve rate hikes.

Early Friday in Asian trading, spot gold hovered around $4,315 per ounce, with market attention firmly fixed on upcoming US CPI data and the evolving Middle East crisis.

Geopolitical Escalation and Oil Price Surge: The Direct Catalyst

Yemen's Houthi militants seized the key Red Sea port of Mocha on Thursday and advanced southward along the coastline toward the Hanish Islands, moving dangerously close to the strategic Bab el-Mandeb Strait. This development echoes the ongoing tensions in the Strait of Hormuz, with military reports indicating the Houthi operation was directly guided by Iran's Islamic Revolutionary Guard Corps, extending its influence to the critical southern Red Sea waterway.

Yemeni government forces and their allies are attempting to push south toward Dubab to contest control of the strait. The UN special envoy for Yemen warned that the conflict has entered a new and more dangerous phase, posing a serious threat to global shipping freedom.

As the world's largest oil exporter, Saudi Arabia relies heavily on Red Sea routes to export crude following the effective blockade of the Strait of Hormuz. The Houthis had already declared a maritime blockade on Saudi Arabia and escalated their attacks. Should they gain further control of the Bab el-Mandeb, Iran and its allies would secure a critical strategic advantage in their confrontation with the United States, significantly reducing the supply capacity of alternative shipping routes.

Markets reacted swiftly: Brent crude jumped over 6% on Thursday, breaking through $105 per barrel and touching levels near $109 at its peak. US crude also surged past the $100 mark, hitting an intraday high of $104.44, marking its largest single-day gain in nearly two months. Analysts noted the threat is no longer confined to a single shipping chokepoint but could spread to regional export routes, production facilities, and broader energy infrastructure.

The oil price spike directly fueled global inflation expectations. US August producer price data showed energy prices surging 4.2% month-on-month, ending two straight months of declines. Diesel prices skyrocketed 24.1%, contributing more than one-third of the overall increase in goods costs. Producer goods prices rose 1.1% overall. This energy-driven inflationary pressure quickly translated into a repricing of monetary policy expectations in financial markets, becoming one of the key factors weighing on gold.

Hot Inflation Data Lifts Rate Hike Bets

The US Labor Department's August PPI report served as another critical catalyst. Final demand PPI rose 0.4% month-on-month, in line with expectations, but the year-on-year gain expanded to 5.4%, exceeding forecasts, with July data also revised upward. Excluding food and energy, core goods prices advanced 0.4%.

More notably, the services side revealed concerning details: airfares surged 4.2% after falling in July, highway freight costs jumped 2.0%, and hospital outpatient and inpatient services prices rose 0.4% and 0.5%, respectively. These components have a direct impact on the Federal Reserve's preferred PCE price index. Economists estimate that core PCE could rise around 0.3% month-on-month in August.

The CME FedWatch tool showed the probability of a 25-basis-point rate hike at the Fed's September 15-16 meeting jumped to roughly 70%, up from about 62% before the data release. While some institutions still believe the Fed may hold steady, citing the upcoming PCE calculation methodology adjustment that could revise historical data downward and possibly moderate core inflation, overall market sentiment has clearly shifted hawkish.

The European Central Bank also raised rates by 25 basis points on Thursday as expected, further underscoring global central banks' commitment to tackling energy-driven inflation. Meanwhile, US Treasuries reacted dramatically: the 10-year yield jumped more than 10 basis points to around 4.92%-4.95%, reaching levels not seen since late 2024; the 30-year yield touched its highest level since 2007; and the two-year yield also climbed to multi-year highs. Rising Treasury yields increase the opportunity cost of holding gold, directly pressuring bullion prices.

The US dollar index strengthened in tandem, recovering some of its earlier weekly losses to trade near 99, further raising the cost of dollar-denominated gold for non-US buyers.

Market Sentiment and Fund Flows: Safe-Haven Logic Takes a Backseat

Typically, escalating US-Iran tensions, dual shipping risks in the Red Sea and Hormuz, and Trump's remarks about the conflict potentially lasting until after the November midterms would all reinforce gold's safe-haven appeal. Trump even mentioned the possibility of striking Iran's "Mount Hejaz" facility near Natanz, with Iran's Revolutionary Guard vowing to intensify counterattacks.

However, markets this time are focusing more on inflation stickiness and monetary policy tightening risks. Sustained high oil prices imply inflation could prove more persistent, forcing bond markets to price this in, which weighs on gold prices. Some analysts noted that Asian countries have recently increased crude purchases, supporting the physical market. If this trend continues, it could amplify the impact of supply disruptions; conversely, it could suppress further oil price gains. US crude inventory data showed a modest decline, but the draw was smaller than expected, offering limited support for prices.

Overall, short-term funds are more inclined to reduce allocations to gold as a non-yielding asset amid higher rate expectations, shifting instead toward US Treasuries or dollar assets offering more attractive yields.

Outlook: Near-Term Pressure, Medium-to-Long-Term Support Remains

Given the current landscape, gold faces notable near-term headwinds. If Friday's August CPI data continues to run hot, rate hike expectations could strengthen further, potentially driving prices to test lower support levels. Should oil prices remain elevated due to geopolitical tensions, inflation stickiness could continue to limit gold's rebound potential.

However, from a medium-to-long-term perspective, gold retains multiple pillars of support: the US-Iran conflict is far from resolved, with shipping risks and energy supply uncertainties likely to keep markets on edge; global central banks continue to accumulate gold reserves; and if inflation eventually subsides due to softer demand or supply relief, expectations of a Fed policy pivot would resurface.

The current pullback in gold essentially reflects the market's reassessment between geopolitical hedging and monetary tightening. The Houthis' advance toward the Bab el-Mandeb, persistent Hormuz tensions, and rising US inflation data collectively shape a more complex pricing environment.

Investors should closely monitor the actual extent of shipping disruptions, oil price trajectories, and the Fed's ultimate policy decision. In a highly uncertain environment, gold's long-term allocation value has not disappeared, but near-term volatility will remain significantly elevated. To the upside, watch resistance at the 100-day moving average near $4,339 and the $4,400 psychological level. To the downside, support lies at the September low of $4,282 and the 50-day moving average near $4,268.

As of 07:45 Beijing time, spot gold was trading at $4,317.18 per ounce.