Investors balance geopolitical risks against inflation expectations
Gold prices extended their advance on Tuesday, holding above the key $4,000-an-ounce level as markets responded to renewed diplomatic initiatives between the United States and Iran that could reduce pressure on oil prices and soften inflation concerns ahead of the Federal Reserve’s next policy meeting.
At 01:24 ET (05:24 GMT), spot gold (XAU/USD) rose 1% to $4,049.47 an ounce, while Gold Futures increased 1% to $4,054.35. Silver (XAG/USD) climbed 2.6% to $57.87 an ounce, and platinum (XPT/USD) gained almost 1% to $1,611.09.
Diplomatic progress eases pressure from energy markets
The precious metal strengthened as investors welcomed signs that Washington and Tehran could return to negotiations, helping offset concerns created by recent military escalation across the Middle East.
Crude oil prices retreated after posting gains during the previous two sessions as reports of mediation efforts outweighed continued military exchanges and renewed threats from Yemen’s Iran-backed Houthi movement to block Saudi shipping.
Reuters also reported that mediators have proposed a 10-day ceasefire following comments from a senior Iranian official, raising hopes that last month’s interim agreement could still provide a foundation for wider negotiations.
Oil had recently climbed to its highest level in more than a month, fuelling expectations that higher energy costs could complicate the Federal Reserve’s inflation fight.
Markets await Fed guidance
Attention is now turning to next week’s Federal Reserve meeting, where policymakers are expected to keep interest rates unchanged while offering fresh guidance on inflation and monetary policy.
Current market pricing suggests a 64% probability of a September rate increase.
Afdhal Rahman, Executive Director, Wealth Advisory at OCBC, said gold’s strong rally has run into a more challenging macro backdrop as higher real yields, a stronger U.S. dollar and hawkish repricing of interest-rate expectations have weighed on investor demand.
He added that renewed tensions in the Gulf could keep oil prices, inflation expectations and the U.S. dollar volatile in the near term, leaving gold under pressure until expectations for tighter monetary policy begin to ease, although sustained central bank buying should continue to provide longer-term support for bullion.
Bullion remains resilient after second-quarter weakness
Although gold suffered a 14% decline during the second quarter—its weakest quarterly performance since 2013—it has spent recent weeks consolidating around the $4,000-an-ounce level as investors continue to seek protection from geopolitical uncertainty.
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