Oil shock moves the safe haven from gold to the dollar

28 September: geopolitical tension rose, gold fell

On Monday 28 September, markets broke a familiar rule. As geopolitical tension rose, gold fell while the dollar and bond yields climbed. According to Al Jazeera, spot gold fell 3.3% during the day to 4,146.51 dollars, its lowest level since 5 August. Trading Economics recorded the fall as 3.80% and the price as 4,122.07 dollars, while USAGOLD put it at 3.19% and 4,148.69 dollars. Although the measurement times differ, all three sources show a break of the same magnitude. Silver fell 4.7% to 61.27 dollars the same day.

The trigger was Trump's rejection on 26 September of Iran's 7-day plan to reopen the Strait of Hormuz. According to USAGOLD, Brent approached 106 dollars on 28 September. Under normal conditions, news that heightens geopolitical tension supports gold. This time oil fed first into inflation expectations and from there into rate expectations. According to CME FedWatch data cited by USAGOLD, the probability of a Fed hike at the 28 October meeting rose from 64.2% to 70.3% in a single day. According to Trading Economics, the US 10-year yield rose 7.9 basis points to 5.244%, its highest level since July 2007. The dollar index rose 0.22% to 101.19 and gained 1.77% over the month.

The mechanism: holding a non-yielding asset became costlier

Gold pays no interest. When bond yields rise, the opportunity cost of holding gold, meaning the interest income forgone, grows. According to Trading Economics data, gold fell 7.18% over the month, while the US 10-year yield rose 0.49 points and the 30-year yield 0.31 points over the same period. The fall on 28 September was therefore not a one-day panic but the sharpest day of a repricing that has been under way for a month. USAGOLD also described the move as a repricing in paper markets rather than a fall driven by physical demand.

The break is this: the oil shock is a supply shock, but this time central banks are not looking through it. According to Chase's summary, the Fed voted 12–0 at its September meeting to raise rates to a range of 3.75–4%, its first hike since July 2023. The same summary said 16 of 18 participants expect at least one more hike this year. According to The Fed Agenda, the FOMC's year-end PCE inflation forecast is 3.7%. When a central bank responds, the safe-haven function shifts to the currency of the bank raising rates fastest. On 28 September that currency was the dollar. Gold is still up 7.53% year on year, so structural demand has not broken, but its near-term direction now depends on rate expectations.

The same wave, three different central bank responses

Long-term rates are not rising only in the US. According to Trading Economics, on 28 September Germany's 10-year yield was at its highest since June 2009 at 3.63%, and France's 10-year yield at its highest since July 2008 at 4.78%. In Japan the 30-year yield rose to 4.18% the same day; this maturity hit an all-time high of 4.22% in September. Japan's 10-year yield stands at 3.10%. In other words, the term premium, the extra return investors demand for holding long-dated bonds, is rising in three major markets at once.

The difference lies in how central banks respond. The ECB raised its deposit rate to 2.50% on 10 September. According to Econostream, Lagarde told the European Parliament on 28 September that a measured response was appropriate, because compensation per employee slowed from 3.6% to 3.3% in the second quarter. Lagarde added that long-term rates, which have risen since September, will slow growth and price pass-through more than the projections foresaw. This can be read as the ECB leaving part of the tightening to the bond market. According to Reuters, markets are pricing up to 4 hikes next year, while the ECB is pushing back against that pricing. The Fed, by contrast, is at 3.75–4%, with the probability of an October hike above 70%. As the front-end rate differential widens in the dollar's favour, the dollar attracts both yield-seeking and safe-haven demand.

In Europe, the periphery is paying the price. According to Idéal Investisseur, the OAT–Bund spread, the gap between French and German 10-year yields, rose to a 12-month high of 109.9 basis points on 24 September, against a 12-month average of 74.1 basis points. Trading Economics writes that France's budget deficit is expected to rise to 5.4% this year. As long as the ECB does not object to the rise in long-term rates, there is no apparent reason for this spread to narrow on its own.

In emerging economies, the first effects show up in expectations. In the Central Bank of Brazil's Focus survey of 28 September, the 2026 inflation expectation rose from 4.92% to 4.99%, while economists kept their year-end Selic forecast at 13.50%. According to The Rio Times, the August current account deficit announced the same day came in at 5.1 billion dollars, below the expected 6.2 billion dollars. It was fully covered by 7.4 billion dollars of direct investment. This distinction becomes decisive in a period of dollar strength. A country that closes its external gap with direct investment can limit currency pressure. A country that closes it with portfolio flows and reserves has no such buffer.

This week's test: PCE data and a methodology change

August PCE data on 30 September will test whether the regime is durable. According to the Cleveland Fed estimate cited by The Fed Agenda, headline PCE could rise 0.34% month on month in August. That would lift annual inflation to 3.78%, above the FOMC's year-end forecast of 3.7%. Such a reading would make the Fed projection, which foresees only one more hike this year, look insufficient. Together with the 2 October jobs report, the data will determine the probability of an October hike.

According to the same publication, the 30 September release also includes a methodology change. The measurement of portfolio management and software prices is changing, which could lower core PCE by 0.2–0.3 points across the historical series. This noise could produce a risky misreading. Lower-looking core inflation may reflect a measurement difference rather than disinflation; decisions should rest on the monthly change and the headline figure.

On the fiscal side, the 30 September fiscal year-end poses no risk this time. According to a statement by Representative Hal Rogers, on 1 September the House of Representatives passed, by 370 votes to 48, a stopgap budget extending federal spending to 11 December. The shutdown risk has thus been deferred to 11 December, after the November midterm elections. This shows that this week's rise in yields stems not from a budget crisis but from inflation and rate expectations.

Transmission to Türkiye: the gold leg of the reserves

Türkiye feels this break most directly in CBRT reserves. According to official data reported by Cumhuriyet, the CBRT's gold reserves rose by 1.317 billion dollars to 111.597 billion dollars in the week of 18 September. Foreign currency reserves fell by 5.636 billion dollars to 62.808 billion dollars. Gold made up about 64% of the total of 174.405 billion dollars. That week, the rise in the value of gold offset part of the foreign currency loss.

The fall on 28 September reverses this buffer. If the quantity of gold is unchanged, a price fall of 3.2–3.8% would, by simple calculation, wipe about 3.6–4.2 billion dollars off the value of the gold reserves. This is our own calculation and does not account for changes in the CBRT's gold holdings; the actual impact will be confirmed by official weekly data. At the same time, a strong dollar and a US yield of 5.24% are putting pressure on emerging-market currencies. So while the foreign currency leg of the reserves erodes, the valuation support is also disappearing. With both legs of the reserve buffer weakening in the same week, the CBRT's room to respond to currency pressure narrows.

Thresholds to watch and uncertainties

Three thresholds will test this reading. The first is whether headline annual inflation in the 30 September PCE data comes in above 3.7%. The second is whether the dollar index stays above 101. The third is whether gold settles below its 5 August level, around 4,146 dollars. The uncertainty is also large. The 2 capitals are announcing different negotiating timetables for Hormuz, and a single meeting date could reverse Brent, and with it the whole chain, within a few days. The VIX holding at 16.11 on 28 September shows the equity market does not yet see this regime as a panic but as a gradual repricing.