Gold Price Rallies as Fed Holds Rates, Middle East Tensions Boost Safe-Haven Demand

Gold prices climbed nearly 1% on Wednesday as investors flocked to safe-haven assets following renewed geopolitical tensions in the Middle East, while a weaker U.S. dollar after the Federal Reserve's latest policy decision provided additional support.

Spot gold rose 1% to settle at $4,064.33 per ounce, while U.S. gold futures gained 0.7% to close at $4,065.75 per ounce. The decline in the U.S. dollar made bullion more attractive to holders of other currencies, helping offset pressure from rising Treasury yields.

The Federal Reserve kept its benchmark interest rate unchanged at 3.50% to 3.75% for the fifth consecutive meeting, a widely expected move. However, the decision revealed growing divisions within the central bank, as Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan dissented in favor of a 25-basis-point rate hike.

According to Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, the rare 9-3 vote increases the likelihood of a rate hike at the Fed's September meeting if inflation continues to surprise on the upside. He noted that tariffs, AI-driven investment, and elevated energy prices could keep inflationary pressures persistent, although long-term inflation expectations remain relatively stable.

During his post-meeting press conference, Fed Chair Kevin Warsh described the policy debate as a "good family fight," emphasizing that officials held extensive discussions on inflation, economic shocks, and the appropriate policy response. He also said the three dissenting votes did not fully reflect the broader conversation within the Federal Open Market Committee. Meanwhile, the recent jump in the benchmark 10-year Treasury yield has effectively tightened financial conditions, reducing the urgency for immediate rate action.

Gold also drew support from escalating geopolitical risks after the U.S. military said it intercepted a surprise Iranian missile attack targeting American forces in the Middle East. President Donald Trump later said U.S. forces had only minutes to respond and vowed a strong military retaliation. The U.S. also confirmed joint precision strikes with Saudi Arabia against Iran-backed groups in Iraq, heightening fears of renewed regional conflict and boosting demand for safe-haven assets such as gold.