Why Is Gold Price Rising; Gold Holds Above $4,300 as Oil Prices Ease and Dollar Weakens

Gold prices were volatile in early trade on Friday, September 18, as lower crude oil prices and a subdued US dollar offered support to bullion, while investors assessed the impact of the US Federal Reserve's latest rate hike and ongoing tensions involving Iran.

On the Multi Commodity Exchange (MCX), gold October futures were down 0.08% at ₹1,52,861 per 10 grams around 9:10 am. In international markets, spot gold was up 0.3% at $4,352.60 per ounce, while US gold futures for December delivery fell 0.2% to $4,391.60.

The movement followed a volatile previous session in which gold initially declined after the Fed raised interest rates by 25 basis points on September 16, before recovering sharply.

Why is gold price rising despite the Fed rate hike?

Higher US interest rates and Treasury yields generally put pressure on gold, as the non-yielding asset becomes less attractive compared with interest-bearing investments. However, the subsequent decline in oil prices and weakness in the dollar helped bullion recover.

Brent crude fell around 1% on Friday to trade below $104 a barrel, following a sharper decline in the previous session. Lower oil prices can ease inflation concerns and reduce some of the pressure on interest-rate expectations, providing support to gold.

The US dollar also remained subdued after retreating from recent highs. A weaker dollar generally supports gold prices as it makes the dollar-denominated commodity cheaper for buyers using other currencies.

Anindya Banerjee, Head of Research – Currency, Commodities and Interest Rates at Kotak Neo, said gold's reaction to the Fed decision was significant. Gold initially fell around 2% following the quarter-point hike but reversed sharply and closed around 1.8% higher near $4,342, despite the dollar index remaining above 100.

According to Banerjee, markets are increasingly interpreting tighter monetary policy alongside an oil-driven inflation shock as a potentially stagflationary backdrop rather than simply a reflection of economic strength.

Geopolitical uncertainty is another factor keeping gold in focus. Markets are monitoring developments involving Iran and the wider Middle East, with the potential for further escalation supporting safe-haven demand.

At the same time, any sustained disruption to energy supplies could push crude prices higher, potentially reviving inflation concerns and complicating the outlook for interest rates.

For Indian markets, movements in the rupee also influence domestic bullion prices. The rupee closed around 95.94 against the US dollar in the previous session after briefly moving above 96.

Gold price outlook: Key levels to watch

Banerjee identified $4,300 as a key level for gold. A sustained break below this level could bring $4,150-$4,200 into focus, while $4,450-$4,500 remains a major resistance zone.

He said $4,500 remains achievable if momentum continues, although a strong dollar could limit the pace of the advance.

For now, traders are likely to track upcoming US economic data, Federal Reserve commentary, Treasury yields and the dollar for clues on the next direction of bullion. Developments in the Middle East and crude oil prices will also remain important, particularly if they alter expectations for inflation and monetary policy.

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