Spot gold dropped 1.80% to $4,269.90 an ounce, while silver fell 2.50% to $62.75. Markets are currently pricing in an 87% probability of a 25-basis-point rate hike this Wednesday, driven by August inflation data that exceeded economist expectations. Core CPI rose 0.3%, keeping annual inflation at 3.4% and fueling fears of persistent, energy-driven price pressures.

Geopolitical instability, including drone attacks on Saudi Arabian energy infrastructure and threats to shipping routes in the Strait of Hormuz, has pushed Brent crude above $108 a barrel. While such uncertainty usually bolsters gold as a safe haven, the resulting inflation fears are paradoxically strengthening the argument for tighter monetary policy. Waleed Said of GivTrade notes that gold is trapped between these competing forces: geopolitical risk supports the metal, but rising yields provide investors with greater compensation for holding interest-bearing assets.

The benchmark 10-year Treasury yield reached 4.992%, marking a three-year high. Beyond the immediate impact on bullion, this climb creates a broader fiscal headache, as U.S. sovereign debt now exceeds $40 trillion. Technical indicators further underscore the bearish sentiment, with gold testing support at its 50-day moving average of $4,266.76. Investors are now looking toward Fed Chair Kevin Warsh’s upcoming guidance to determine whether the central bank views the current energy shock as a trigger for a more aggressive, prolonged tightening cycle.