Gold prices are trading around $4,332.60, lacking clear direction as investors await the Federal Reserve's monetary policy decision. While the Fed is expected to keep interest rates unchanged within the 3.5%–3.75% range, attention is focused on updated economic projections and comments from Fed Chair Kevin Warsh concerning the future path of interest rates. Market analysts currently assign about a 60% probability of a 25 basis point rate hike in December.
The interim agreement between the US and Iran, which includes a 60-day ceasefire and the reopening of the Strait of Hormuz, has reduced concerns about global energy supply disruptions and contributed to a weaker US Dollar. This easing of geopolitical tensions, and the subsequent drop in oil prices, has softened inflation expectations and, in turn, tempered bets on aggressive Fed rate hikes. Earlier, traders had assigned a 70% chance of a December hike, which dropped to 58% after the peace deal was announced.
Despite the support from a softer US Dollar and reduced rate hike expectations, gold has experienced selling pressure, with spot gold dropping over 2% to $4,238.85/oz and silver falling 3% to $67.95/oz following the diplomatic breakthrough. However, gold still holds comfortably above the $4,300 level. Uncertainties surrounding the full details of the US-Iran agreement and potential disagreements on nuclear program negotiations are limiting market directional moves.
The market's next significant movement for gold will likely be determined by the central bank's announcement. A more dovish tone from the Fed could boost gold's demand, while a hawkish stance could strengthen the US Dollar and US yields, thereby capping gold's upside potential in the near term. The deal also includes a US pledge of no new sanctions and a commitment to an economic reconstruction program for Iran worth at least $300 billion, with the US targeting the full removal of its naval blockade within 30 days.
