Gold prices found stability on Tuesday, trading around $4,315 after an earlier dip to $4,291, as market attention shifted to potential diplomatic breakthroughs between the US and Iran. The prospect of Iran reopening the Strait of Hormuz within seven days, contingent on the US lifting port blockades and easing military pressure, contributed to a significant drop in oil prices, with Brent crude falling below $100 a barrel and WTI below $95. This de-escalation in geopolitical tensions helped alleviate inflation fears, which in turn softened expectations for aggressive Federal Reserve interest rate hikes.
The ongoing hawkish outlook from the Federal Reserve remains a primary headwind for gold, a non-yielding asset. Despite the easing oil prices, the Fed had just implemented its first interest-rate hike in three years last week, raising the federal funds rate by 25 basis points to 3.75%-4.00%. Sixteen out of eighteen officials anticipate at least one more rate increase this year, with Fed officials like Alberto Musalem and Austan Goolsbee suggesting further tightening might be necessary to control inflation and prevent an overheating economy.
While the gold market is balancing these opposing forces, the softening US dollar also offered some support, with the US Dollar Index (DXY) retreating from an intraday high of 100.67 to around 100.40. Investors are closely monitoring the UN General Assembly, where President Donald Trump has indicated a willingness to meet with Iranian President Masoud Pezeshkian, though no talks are confirmed. This diplomatic overture, along with the decline in crude oil, helped push spot gold up 0.4% to $4,359.40 an ounce, and gold futures up 0.3% to $4,396.85 an ounce.
