Gold prices are experiencing a fifth consecutive day of gains, reaching near a one-week high of $4,341.12 per ounce in spot trading and $4,361.10 for U.S. Gold Futures for August Delivery, a 0.2% increase. This rally is primarily driven by a developing interim peace deal between the United States and Iran, which has reduced expectations of further interest rate hikes by the Federal Reserve. The proposed deal, announced by President Donald Trump, is expected to allow Iranian oil sales to resume, pushing oil prices to a three-month low and, in turn, easing inflationary pressures.
The U.S.-Iran agreement, which includes a 60-day ceasefire, the reopening of the Strait of Hormuz, and technical talks on Iran's nuclear program, has led traders to significantly scale back predictions for a December U.S. rate hike. According to the CME FedWatch tool, the probability of a rate increase in December has dropped from 70% last week to 57-59% currently. This makes gold, which doesn't yield interest, a more attractive investment when interest rates are expected to remain stable or fall.
Investors are now closely monitoring the Federal Reserve's policy announcement and the first press conference led by new Fed Chair Kevin Warsh, scheduled for later today. While the Fed is widely expected to keep interest rates unchanged, market participants are keen to assess Warsh's stance on inflation, given his hawkish record. A dovish signal from Warsh could further boost gold and silver prices, potentially pushing gold towards $5,000, while a hawkish tone could put short-term pressure on the metals, according to analysts like Ilya Spivak of Tastylive and Edward Meir of Marex.
Despite the immediate gains, some analysts, such as Westpac, anticipate structural support for gold in the long term, driven by continued Asian demand and central bank purchases as a hedge against geopolitical and political risks. Gold is currently trading comfortably above the $4,300 level, consolidating its recent rebound from a yearly low. However, its continued rally hinges on the Fed's stance, particularly regarding potential changes in interest rates, as higher rates typically diminish gold's appeal.
