Gold Gains as Oil Falls and Fed Hike Bets Ease

Key Moments

Gold Edges Higher as Oil Slips

Gold prices moved moderately higher on Tuesday, supported by continued weakness in oil following the announcement of an interim peace agreement between the U.S. and Iran that reduced some inflation-related concerns.

By 09:29 ET (13:29 GMT), spot gold was up 0.6% at $4,335.27 an ounce, while gold futures were 0.1% higher at $4,354.75 an ounce.

The metal had already surged more than 2% on Monday after Washington and Tehran unveiled a preliminary deal aimed at resolving their conflict and reopening the Strait of Hormuz. The prospect of resumed oil flows through this key shipping channel pressured crude prices, helping to temper worries about an energy-driven inflation spike that could push central banks toward further interest rate increases. Higher-rate environments tend to weigh on non-yielding assets such as gold.

Dollar Reaction and Shifting Market Focus

The improvement in risk sentiment also undermined the U.S. dollar, which had been favored as a relative safe haven during the Middle East conflict. The currency had been supported in part by the perception that the U.S., as a major energy exporter, could be less exposed to an oil supply shock.

A gauge tracking the dollar against a basket of other major currencies was slightly weaker on Tuesday. However, analysts at ING argued that core drivers of dollar strength – including robust economic data and the potential for further Federal Reserve rate hikes – remain intact.

“The first 36 hours of trading after the U.S.-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,” analysts at ING said in a note.

Focus on the Federal Reserve

ING analysts noted that the Federal Reserve’s upcoming policy announcement on Wednesday is “firmly in focus.” The Fed is widely expected to keep interest rates unchanged, heightening attention on new Chair Kevin Warsh’s first post-meeting press conference.

Since the announcement of the interim U.S.-Iran agreement, market expectations for an additional Fed rate increase this year have moderated. According to CME’s FedWatch Tool, the probability of a hike by December has fallen to 58% from around 70%.

Global Central Bank Developments

Investors are also monitoring several key central bank decisions this week.

The Bank of Japan raised its short-term policy rate by 25 basis points to 1.0%, marking its highest level in 31 years. The move was broadly expected and is aimed at curbing inflation while continuing the gradual normalization of monetary policy.

In contrast, the Reserve Bank of Australia left its benchmark rate unchanged at 4.35%, following three consecutive increases.