Precious Metal Gains Amid Falling Oil Prices
Gold prices traded modestly higher on Tuesday as markets continued to assess the implications of the provisional U.S.-Iran peace agreement and its potential impact on global inflation.
Spot gold rose 0.9% to $4,345.72 per ounce, while gold futures added 0.3% to $4,366.25 per ounce.
The move followed a strong rally in the previous session, when bullion climbed more than 2% after Washington and Tehran announced a preliminary deal aimed at ending hostilities and reopening the Strait of Hormuz.
Lower Crude Prices Help Ease Inflation Pressures
The prospect of renewed energy shipments through the Strait of Hormuz has pushed oil prices lower, helping to reduce concerns about a prolonged energy-driven inflation shock.
With crude retreating, investors have become less worried that central banks will be forced to maintain restrictive monetary policies for longer.
Because gold does not offer a yield, expectations for interest rates remain one of the key drivers of demand for the metal.
Dollar Softens as Risk Appetite Improves
Improved market sentiment also weighed on the U.S. dollar.
Throughout the Middle East conflict, the greenback attracted safe-haven demand, supported by the view that the United States would be less vulnerable to higher oil prices due to its position as a major energy exporter.
Although the dollar eased slightly on Tuesday, ING analysts argued that the currency’s broader fundamentals remain supportive.
“The first 36 hours of trading after the US-Iran deal point to a structurally stronger dollar than a few weeks ago. Nearly all weekend losses have already been reversed despite a sharp drop in oil, signaling that FX markets are shifting focus away from crude and back to central banks,” ING said in a research note.
Markets Await Signals From the Federal Reserve
Attention is now turning to Wednesday’s Federal Reserve policy announcement.
While economists broadly expect policymakers to leave interest rates unchanged, investors will be closely watching remarks from Fed Chair Kevin Warsh following the decision.
ING said the upcoming Fed meeting is “firmly in focus” as traders look for clues about the future path of U.S. monetary policy.
Bank of Japan and RBA Also in the Spotlight
Elsewhere, central bank developments continued to influence market sentiment.
The Bank of Japan raised its benchmark interest rate by 25 basis points to 1.0%, its highest level in more than three decades, as policymakers seek to contain inflation and continue normalizing policy settings.
Meanwhile, the Reserve Bank of Australia left its benchmark rate unchanged at 4.35%, following three consecutive increases.
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