Gold Strengthens as Fed Hike Expectations Ease
Gold prices rose on Tuesday (June 16th) after expectations for a Federal Reserve interest rate hike this year eased, following the interim US-Iran peace deal that pressured oil prices and eased inflation concerns.
Spot gold rose 0.8% to $4,338.97 per ounce after hitting its highest level since June 5th in the previous session. US gold futures added 0.1% to close at $4,354.40.
The interim deal announced by President Donald Trump will extend the fragile ceasefire for 60 days and reopen the Strait of Hormuz. The waterway has been effectively blocked by Iran since the US and Israeli attacks on Iran in February.
David Meger, director of metals trading at High Ridge Futures, said the market has been supported in the past two sessions by the prospect of a US-Iran deal to end the war. He said that development has depressed short-term interest rates, lowered energy prices, and reduced the likelihood that the Fed will need to raise interest rates by the end of the year.
Brent fell below $80 per barrel for the first time since early March, after weakening nearly 5% on Monday following the announcement of the interim agreement. The decline in oil is a key factor as it could ease inflationary pressures from the energy side and reduce the need for central banks to maintain a tighter policy stance.
Markets have now cut expectations for a Fed rate hike in December to 58% from around 70% previously, according to the CME FedWatch Tool. For gold, this shift in expectations is a positive catalyst, as non-yielding assets tend to be more sensitive to the prospect of lower interest rates and yields.
Gold has been under pressure since the start of the US-Israel war against Iran, when a surge in oil prices reinforced expectations that high interest rates could persist for longer. While gold is often seen as a hedge against inflation, the high interest rate environment limits its appeal due to its lack of yield.
The market's next focus will be on a series of central bank decisions this week, including Wednesday's Fed decision, the first meeting under new Chairman Kevin Warsh. In other precious metals, spot silver rose 0.7% to $70.51 an ounce, platinum rose 2.7% to $1,812.76, and palladium rose 0.9% to $1,360.75.
Source: Newsmaker.id
