Spot Gold extended gains on Tuesday as some optimism over de-escalation in the Middle East conflict has emerged.
Yet, the metal was on course for its steepest monthly drop since October 2008 due to a firmer US Dollar and diminishing expectations of Federal Reserve interest rate cuts this year.
“Gold prices are bouncing in early Asia-Pacific trade after U.S. President Donald Trump told aides he is willing to end the U.S. military campaign against Iran… That triggered a risk-on response from financial markets,” Ilya Spivak, head of global macro at Tastylive, was quoted as saying by Reuters.
“Gold has been stabilizing for about a week now, with a rally last Friday a particular standout. That came alongside a drop in Treasury yields that seems to suggest the markets are starting to see the Iran war as a recession risk,” Spivak added.
Trump told aides that he was willing to put an end to the military campaign against Iran even in case the Strait of Hormuz remained largely closed. As a result, Oil prices have pulled back, while easing inflation fears.
However, uncertainty remains high, as Iran has shown little willingness to engage in direct talks. At the same time, media reports indicated that the US was preparing for weeks of ground operations in Iran, after additional troops were deployed in the region.
Traders are no longer expecting two rate cuts by the Federal Reserve this year. Instead, expectations of a potential rate hike have risen, which may keep the US Dollar underpinned and restrict Gold upside.
Spot Gold was last up 0.92% on the day to trade at $4,552.00 per troy ounce.
Still, the yellow metal has retreated 13.75% so far this month.
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