Gold prices strengthened on Tuesday after a preliminary US-Iran deal regarding the war in the Persian Gulf led to a reduction in expectations for a US interest rate hike. Spot gold increased by 0.8% to $4,338.51 per ounce by 11:32 GMT, recovering approximately 8% from a six-month low seen the previous week. US gold futures delivery rose by 0.2% to $4,358.90.
US President Donald Trump announced on Monday that an agreement with Iran had been signed, with the text to be released after a formal signing on Friday. He also stated that the Strait of Hormuz would be fully open. ActivTrades analyst Ricardo Evangelista noted that the peace deal reports have lowered oil prices and are easing inflationary concerns, leading investors to trim expectations for central bank interest rate hikes, which is positive for gold.
Following the peace deal, markets have scaled back expectations for a December Federal Reserve rate hike to between 56% and 58% from a previous estimate of around 70%, according to the CME FedWatch tool. Elevated interest rates typically make interest-bearing assets more attractive than non-yielding gold. Investors are now closely watching the Federal Reserve's policy meeting on Wednesday, the first under new Chair Kevin Warsh, for any inclination towards a more dovish stance, which could further boost gold prices. The World Gold Council reports that a record 45% of surveyed reserve managers anticipate increasing their gold holdings over the next year.
