Oil prices are still dominating gold pricing

Forex.com, September 24 — The market no longer simply trades gold as a fear gauge. The focus now is on the ripple effects brought about by changes in oil prices.

As the gold market opened on Wednesday (September 23), attention was focused on both crude oil and the Federal Reserve.



On Tuesday, price action was volatile, with gold prices hovering around $4,360 per ounce. Gold behaved like a yo-yo, swinging up and down and finally closing slightly higher. This week’s core macro catalyst remains unchanged: Initial progress in US-Iran diplomatic talks may suppress energy prices and, via the inflation transmission chain, weaken the narrative that “high interest rates will be sustained for a long time.”

US President Trump stated that US officials had a “very smooth” three-hour meeting with the Iranian envoy in New York, reigniting faint market hopes that a diplomatic breakthrough could ease tensions. However, for gold, the crucial transmission channel remains crude oil. Gold is no longer traded purely as a geopolitical safe haven, but more so as a reflection of energy prices’ secondary impacts on inflation, Federal Reserve policy, and the US dollar.

Oil prices have already started to play their part.

Buoyed by news of easing US–Iran tensions, and reports that Saudi Arabia is preparing to restart its East-West oil pipeline, opening a new route that bypasses the Strait of Hormuz, WTI crude has dropped more than 10% since last Tuesday’s close. For every dollar oil prices fall, a major core logic supporting higher global interest rate expectations is eroded.

Gold’s movement is closely tied to crude oil.

This interlinkage is the primary driver of short-term gold price fluctuations. Rising energy prices directly push up inflation, and the market is becoming increasingly sensitive to whether gold’s response to inflation pressure is persistent or temporary. Should crude oil continue to fall, the market may start doubting whether developed markets’ current rate hike pricing is overdone; conversely, if oil rebounds, a hawkish policy narrative regains support.

This explains a certain phenomenon: sometimes gold jumps on fresh geopolitical news, but even if negative headlines persist, gold weakens the next day. The market no longer trades gold simply as a panic indicator; it is the ripple effects from oil price moves that are being traded.

The Federal Reserve forms the other end of the equation.

Last week the Fed unanimously hiked rates for the first time in three years, and subsequent policy statements skewed hawkish, boosting the dollar and putting continued pressure on gold. Richmond Fed President Tom Barkin warned that it would take time for inflationary shocks to subside and that there was a risk of sticky inflation, yet he did not signal another imminent rate hike.

Thus, gold is tied within a narrow but crucial range. Falling oil prices offer support, while a stronger dollar acts as a ceiling. Unless traders can clearly determine whether the degree of energy deflation is enough to reverse the current Fed stance, gold prices are likely to continue shadowing every move in crude oil.

Beneath the surface, however, a deeper source of support is gradually building.

By August, China’s gold imports had surged past 1,000 tons, already exceeding 2025’s projected total annual imports. The impressive growth indicates that physical gold demand is not waiting for a perfect macro environment before entering. The strengthening RMB has boosted domestic purchasing power, domestic gold prices remain slightly above international benchmarks, and investment demand continues to absorb market supply.

As of August, domestic gold ETFs had increased their holdings by about 44 tons, and the gold-buying momentum among central banks globally remained strong. The People’s Bank of China extended its nearly two-year streak of gold accumulation in August, further boosting market sentiment.

This has resulted in an interesting divergence: at the macro trading level, oil, the dollar, and the Fed form a three-way tug of war; meanwhile, physical demand quietly props up gold prices.

This is the core contradiction for traders at present.

If oil prices continue to decline, rate hike expectations will weaken, and if China’s demand stays resilient, the macro headwinds for gold will drop significantly. On the other hand, should US-Iran negotiations break down and oil spikes once more, inflation pressures will roar back and the Fed’s rate-hike dilemma returns to center stage.

Currently, gold prices remain steady because neither bulls nor bears have seized overwhelming control.

For now, crude oil still holds the dominant pricing power.