Gold Strengthens as Dollar Weakens, Yields Stabilize and Iran Peace Optimism Rises
Gold prices moved higher on Wednesday (May 20), as the U.S. dollar weakened amid an easing of the global bond selloff and improved risk sentiment after President Donald Trump stated that Washington was in the "final stages" of peace negotiations with Iran. At 3:10 p.m. ET (19:10 GMT), spot gold rose 1.4% to $4,543.51 per ounce, while gold futures edged down 0.3% to $4,546.35 per ounce. Among other precious metals, spot silver rose 3.5% to $76.28 per ounce, while spot platinum fell 0.7% to $1,963.05 per ounce.
Bond Selloff Eases, Fed Points to Potential Interest Rate Hike
Gold and the dollar have recently been impacted by a sharp global bond selloff, triggered by rising market expectations of interest rate hikes in various countries to address surging inflation stemming from rising oil prices related to the Iran war. A higher interest rate environment is typically unfavorable for non-interest-bearing assets like gold. Furthermore, high interest rates tend to strengthen the dollar, making gold more expensive for foreign buyers.
David Morrison, senior market analyst at Trade Nation, said, "While geopolitical tensions remain high due to the US-Iran war, investors have repeatedly rejected gold as a safe-haven asset, instead shifting funds to the US dollar. This demonstrates the inverse correlation between gold and the dollar." Morrison added that rising bond yields due to inflation expectations also dampen demand for gold and silver.
Fed Minutes and Inflation Support Prospects of Interest Rate Hike
The bond selloff eased on Wednesday, sending US Treasury yields lower. Metals market participants, bond traders, and monetary policy observers are also reviewing the minutes of the Federal Reserve's April meeting. The minutes showed that a majority of FOMC members believed a rate hike was "likely appropriate" if inflation remained above the 2% target. The latest inflation data showed the immediate impact of surging oil prices on consumer and producer prices, with the annual US CPI reaching its highest level since May 2023 and the PPI posting its largest increase since December 2022.
Fed Leadership Transition
The minutes also come as the Fed is in a transitional period. Jerome Powell's term as Fed Chair expired last Friday, and his successor, Trump-appointed Kevin Warsh, will soon be sworn in. Warsh took over amid pressure from Trump for the central bank to lower interest rates, but that scenario is currently highly unlikely given the ongoing conflict in the Middle East. According to CME FedWatch, the market still expects the Fed to hold rates steady throughout the year, although expectations of a rate hike from July to December have increased.
Iran Peace Hopes Boost Risk Sentiment
In the Middle East, a Bloomberg News report cited Trump as stating that the US is in the "final stages" of negotiations with Iran, according to a White House pool report. Oil prices continued to weaken following this news. Trump previously said the Iran war could end "very quickly" and that he was delaying new attacks on Iran at the request of three Gulf states. Vice President J.D. Vance also sounded a note of optimism separately, stating that Tehran wants to reach a deal, raising market hopes for geopolitical stability and boosting risk sentiment.
Source: Newsmaker.id
