Gold prices rose on Tuesday, extending gains after a sharp rally on Monday, as optimism surrounding an interim peace deal between the U.S. and Iran led to a decrease in expectations for interest rate hikes from the Federal Reserve. Spot gold was up 0.8% at $4,338.97 an ounce, having touched its highest level since June 5. U.S. gold futures added 0.1% to settle at $4,354.40.
The interim agreement, announced by President Trump, proposes a 60-day extension to a ceasefire agreed in April and the reopening of the Strait of Hormuz, which Iran had previously blocked. This development has contributed to a drop in oil prices, with Brent crude futures falling below $80 a barrel for the first time since early March, and subsequently, a reduction in inflation fears. High Ridge Futures director of metals trading, David Meger, noted that lower short-term interest rates and energy prices reduce the likelihood of a Fed rate hike later in the year.
Markets have adjusted their expectations for a December Fed rate hike, paring them back to 58% from around 70% previously, according to the CME FedWatch tool. Non-yielding gold typically suffers in high interest rate environments, despite its role as an inflation hedge. Investors are now keenly focused on upcoming central bank meetings, particularly the Federal Reserve's rate decision on Wednesday, which will be the first under new Chairman Kevin Warsh.
Other precious metals also saw gains: spot silver rose 0.7% to $70.51 per ounce, platinum climbed 2.7% to $1,812.76, and palladium increased 0.9% to $1,360.75.
Analysts at ING, however, suggested that while lower oil prices might initially weaken the U.S. dollar, underlying support for the currency remains. They observe that nearly all weekend losses in the dollar had been reversed despite the drop in crude, indicating a market shift from oil prices back to central bank actions.
