Gold prices advanced on Monday as optimism surrounding a potential agreement between the U.S. and Iran led to a significant decline in oil prices. This dip in crude oil, including WTI falling to the high-$78 to $79 range and Brent dropping to the low-$83 area, eased concerns about inflation and the likelihood of sustained high interest rates. Consequently, expectations for further rate hikes by the U.S. Federal Reserve this year diminished, bolstering gold's appeal as a non-yielding asset. Spot gold was up 0.37% at $4,056.60 an ounce, while U.S. gold futures edged 0.2% higher to $4,048.80.
The Federal Reserve had previously held the federal funds rate target range at 3.50% to 3.75%, but futures markets were still pricing in a roughly two-thirds chance of a September rate hike before Monday's oil selloff. Giovanni Staunovo, an analyst at UBS, noted the return to a correlation where gold rises as crude oil falls, emphasizing that lower oil prices are modestly reducing U.S. rate hike expectations. Three dissenting Fed officials last week had expressed concerns that without an immediate rate increase, inflation might remain above the 2% target. However, July's PCE inflation later softened to 3.7% year over year, with core PCE at 3.3%.
Further supporting gold prices, the U.S. dollar weakened, hitting its lowest level since mid-June after authorities intervened to support the yen. This made dollar-priced gold more affordable for international buyers. Additionally, yields on the benchmark 10-year U.S. Treasury note also fell. Analysts like Daniel Hathorn from Capital.com viewed the U.S.-Iran diplomacy as a "step in the right direction." Spot silver gained 0.87% to $57.940, platinum rose 0.1% to $1,643.46, and palladium remained steady at $1,273.12. Traders are also monitoring upcoming U.S. jobs reports, including ADP employment and nonfarm payrolls data, which could influence future Fed decisions.
